Member blog: What Happens if Britain’s Backbone Breaks?

We knew that shortages were here and that initial price increases were down to a simple case of supply and demand post pandemic restrictions but, the precedents and predictions for finances are seemingly obsolete as we enter frighteningly, uncharted territory.

2022 brings with it soaring costs and the biggest challenges for SMEs. It’s no secret that British independent businesses are the backbone of Britain.

According to research, total employment in SMEs was 16.3 million (61% of the UK total), whilst turnover was estimated at £2.3 trillion (52% of the total).

Hospitality makes up a fair chunk of these impressive stats. UKHospitality reports that the sector employs 2.9 million people, generates £130bn in economic activity and pays £38bn in taxation. It’s also the third largest private sector employer in the UK; double the size of financial services and bigger than automotive, pharmaceuticals and aerospace combined!

As taxation goes up along with costs, even the baby boomers will start to tighten their belts as they watch their disposable incomes evaporate and the jostling by businesses to win shrinking markets is no doubt, likely to become frenzied.

Consumers will be cutting expenditures from their lists like disloyal friends before long. Increases in food and energy costs, the rise in National Insurance payments, VAT on goods and services for tourism and hospitality up from 12.5% to 20% are a potentially, toxic cocktail.

The Treasury declared its support for industries impacted by Covid restrictions, but help has more or less now evaporated. Many commentators are condemning the tax increases which could create the perfect conditions for business closures, subsequent unemployment and further reduce consumer spending power which can only compound an already startlingly bad outlook.

Quite simply, SMEs find themselves in the pinch-point, cost pressures mean business is between a rock and a hard-place – putting prices up for customers who are seeing decreasing spending power is a recipe for disaster.

Industry body UK Hospitality has warned the increase in VAT will “restrict the sector’s efforts to stifle rises for customers”.

“For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal,” chief executive Kate Nicholls said.

For hospitality, visitor numbers are still below pre-pandemic levels so there’s lost ground to make up. The taxation and overall dramatic increases in costs may sound the death knell for many businesses. But there will be those who, through innovation and sheer grit may still pull through – after all, Britain is counting on it.

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