Summary of Business Concerns for Government Report
The following key points summarise feedback from businesses regarding the challenges posed by recent cost increases:
1. Labour Cost Increases:
Rising National Minimum Wage (NMW) and National Insurance (NI) contributions are significant burdens, with many businesses anticipating workforce reductions to retain profitability.
Employers' allowance increases are insufficient to offset the financial impact of NI and NMW changes, especially for businesses employing part-time workers now falling into NI bands.
Wage costs are projected to rise by 10% in April, compounding existing challenges.
2. Economic Pressures on Operations:
Spiraling overheads, including energy costs, rent increases, and business rates, are severely eroding profits.
Some businesses report being unable to absorb these costs, necessitating price increases for customers, with an expectation of reduced sales volume as a consequence.
Consumer confidence is low, with cautious spending patterns resulting in flatlining sales and reduced footfall.
3. Price Resistance and Competitiveness:
Businesses are facing customer resistance to price increases, which exacerbates financial strain.
Retailers are delaying the adoption of Consumer Price Index (CPI)-based price adjustments, stretching implementation periods beyond three months, impacting cash flow and profitability.
4. Market and Regulatory Challenges:
Brexit-related regulations, including additional documentation for products with animal-origin ingredients, have increased administrative burdens and reduced competitiveness in European markets.
Competition remains fierce, with businesses struggling to compete with more cost-effective imports.
5. Sectoral Impact and Confidence:
Declining consumer confidence and cautious purchasing habits are reducing sales in retail and wholesale sectors.
Long-standing family businesses and generational enterprises are expressing diminished enthusiasm and outlook due to these challenges.
6. Energy Costs and Future Viability:
Energy contract renewals are forecasted to bring substantial increases, e.g., a 60% rise equating to an additional £2,500 per week for some businesses.
Business owners are questioning the viability of operations, with some considering closures in the near future due to unsustainable costs.
Key Takeaways for Policy Consideration
Immediate relief is needed to address rising employment costs and business rates.
Measures to reduce administrative burdens for exports post-Brexit could improve competitiveness.
Support mechanisms to stabilize energy costs and address price resistance in the supply chain are critical.
Small and independent businesses on high streets require targeted assistance to prevent closures and preserve local economies.
Survey Findings
1. Most Significant Cost Increase
National Minimum Wage: 66% of respondents identified this as the most significant cost increase.
National Insurance Contributions: 33.3% of respondents highlighted this as a key concern.
Cost increases range from £1,700 to £15,000 per week for businesses.
2. Allocation to Employee Wages
80% of respondents stated that over 50% of their revenue is now allocated to employee wages following the National Minimum Wage increase.
3. Measures to Reduce or Control Rising Costs
100% of respondents indicated that they will increase their product prices.
4. Passing on Increased Costs to Customers
70% of respondents plan to pass on increased costs to customers in April.
5. Impact on Business Investment
75%: Stopped investment completely.
25%: Significantly reduced investment.
6. Proportion of Energy-Related Costs
Members reported that 10-20% of their business costs are energy-related.
7. Steps to Reduce Energy Costs
50%: Installed energy-efficient equipment.
50%: Switched energy suppliers.
8. Managing Increased Staffing Costs
30%: Hiring fewer employees.
70%: Reducing hours for existing staff.
9. Business Changes to Manage Increased Costs
65%: Plan to close less profitable locations or reduce operating hours.
10. Inheritance Tax Concerns
30% of respondents identified inheritance tax and changes to Business Property Relief as major concerns, particularly for succession planning.
11. Government Policies and Support
100%: Respondents believe that current government policies do not sufficiently support small bakery businesses.
Requested Support from the Government:
Better provision for training providers and emphasis on apprenticeships.
Removal of business rates and reduction of corporation tax.
Increased investment in commercial property and training for young people.
Stronger engagement and support from MPs and local councils.
12. Biggest Concerns Regarding Rising Costs
Key Themes:
Ability to absorb increased costs and remain trading.
Closure of businesses, leading to local job losses.
The razor-thin margins of bakery operations make it nearly impossible to absorb additional costs.
Some businesses estimate needing an additional £350,000 annually just to maintain current operations.
Comments on Taxation:
The UK has one of the highest corporation and income tax commitments globally, and further taxation is seen as detrimental to small businesses.
Conclusion
The survey results illustrate the severe financial strain faced by small bakery businesses due to rising costs, insufficient government support, and taxation policies. These challenges jeopardize the viability of the industry, risking closures and job losses. Urgent action is needed to address these concerns and ensure the survival and growth of small bakery businesses.
Appendix
Survey Methodology: The survey was conducted among small bakery business owners to gather insights into the financial pressures and operational challenges they face.
Member Letters
Member 1:
"I beg you to reconsider the IHT/BPR changes. Even in proposal, IHT BPR is already damaging our UK family-owned business – it comes on top of other proposed tax rises. We have halted investment in our business as we have lost confidence."
"4 people retired/left us in December (2.7%), and we won’t replace them. We fear even greater job losses as our food service and hospitality customers suffer."
"Our family bakery in Barnsley has been a cornerstone of the community for 72 years. What started as a village transport café is now a £10 million frozen bakery goods manufacturer supplying the food service industry all over the world."
"Under the proposed IHT, my son would face a £400,000 tax bill upon my passing—an impossible burden for someone still repaying student loans."
Member 2:
"Business rates will cost around an additional £35,000 per year. The NMW (and to maintain our differential in the structure we operate) will cost us around £100,000, and the double whammy of Ers NI will cost the company around another £80,000-£100,000 at the current wage rate."
"We support around 135+ families, which is significant not only in the local economy but also for fostering growth, stability, and community well-being."
Call to Action
Reconsider proposed IHT/BPR changes to support continuity of family businesses.
Implement measures to mitigate the impact of increased business rates and NMW on small businesses.
Provide targeted support for manufacturers unable to offset rising costs due to budget constraints.
This document highlights the severe challenges faced by our members and outlines the urgent need for government intervention to protect jobs, local economies, and the future of family-owned businesses in the UK.