Government asks SMEs to foot the bill for rising consumer prices

The government’s newly-appointed cost of living tsar has announced an upcoming campaign asking businesses to cut their prices as inflation rises.

The announcement comes no less than four months after the government’s cost of living package was branded “extremely disappointing” by British business leaders.

Critics have reacted strongly to the plans, which give no mention of subsidies or grants to help absorb the impact that lower prices would have on firms.

We speak to small business owners across the country to get their take on the decision, and hear what they think the government should be doing to support their businesses and customers.

What is the government’s proposed campaign?

Reportedly launching in early-July, the new campaign will highlight businesses that are most ‘helping’ consumers deal with the current cost of living crisis by lowering their prices.

The brains behind the idea, David Buttress, was appointed as the government’s new ‘Cost of Living Business Tsar’ earlier in the year.

As an incentive to join the campaign and cut their prices, Buttress (the founder and former CEO of Just Eat) said SMEs will be given ‘kudos’ in the form of adding the campaign name and logo to their branding.

No other financial support is being offered. It is expected that taxpayer money will be spent on a marketing campaign to publicise the proposal.

According to the BBC, firms will be asked to take on the added costs with money that would “otherwise by used on marketing”.

What do SMEs think of the announcement?

The government’s proposal has, unsurprisingly, gone down like a lead balloon in the small business landscape.

The British Retail Consortium (BRC) and the Federation of Small Businesses (FSB) are just some of the many industry organisations that have criticised the campaign as being out of touch with the current challenges facing UK entrepreneurs.

Our coverage of the cost of living crisis reported on the many small businesses that have had to raise costs as a result of squeezed margins – despite their clear reluctance.

In fact, the British Chambers of Commerce’s latest economic survey found that 65% of firms expected to raise prices in the next months leading to September – a record high.

“Ridiculous and patronising.”

Feedback for the policy was largely negative, with one business owner declaring that the idea of asking businesses to make concessions in the current climate is “patronising”.

“We have had to accept a hit on our margins”

Many businesses are avoiding raising prices, as this has the potential to hurt customer relationships and, ultimately, profit margins.

However, as supply chain costs skyrocket, asking businesses to avoid charging customers more is guaranteed to put them at risk of debt and potential insolvency.

Results from a recent survey by Nucleus Commercial Finance found that 23% of UK business leaders fear their company will not survive the financial year due to the current cost of living crisis.

However, most of our respondents say they are prioritising customer experience by taking on as much of the impact of inflation as possible.

“Applying pressure will only make matters worse”

Several of the commenters we spoke to expressed concerns about the long-term impact of the proposal.

With fuel and energy prices only expected to increase in the coming months, most small business owners are worried about preserving cash flow, rather than intentionally risking it.

“The government should be helping”

The most common opinion amongst the SMEs is that policymakers should be injecting real, measurable cash into a dedicated business response to the cost of living crisis.

Conclusion

As they struggle to survive a storm of inflation, energy bill chaos, and labour shortages, the idea that cash-strapped firms can be a crutch for consumer spending is almost laughable.

With nothing officially announced so far on the gov.uk website, there is a strong possibility that the policy will be withdrawn following backlash from critics.

However, proper, cash-backed support is still desperately needed by SMEs. All of the business owners we spoke to told us of the huge difficulty to remain afloat in the face of stagflation – a challenge they currently face with zero government support.

Initiatives such as the £400 grant for households have been designed to give consumers a short-term respite as costs rise.

But policymakers’ focus should instead be on helping SMEs – which constitute 99% of the UK’s business population – to realise a long-term, durable solution to the economic crisis.

What do you think about the government’s proposed campaign? Email us at hello@startups.co.uk to give your thoughts on the initiative.