Rising costs for small companies could cause ‘winter of discontent’ 

Business costs are rising faster for small operators than for larger businesses, research finds.

Some 95 per cent of businesses have seen an overall increase in their business costs during the year, according to research from the Forum of Private Business.

But while annual inflation has dropped from around 5 per cent to 3 per cent, the study also finds small business inflation running at 6.7 per cent, meaning prices have risen far faster for micro, small and medium-sized businesses than for the rest of the UK.

Specifically, 85 per cent of businesses report an increase in energy costs, 88 per cent in transport costs, 82 per cent a rise in marketing costs, and 73 per cent a rise in the cost of raw materials/stock.

The report also identifies that around one in three business owners admit to being unable to pass rising costs onto customers, forcing them to cut their own costs to keep prices static.

Alex Jackman, the Forum’s senior policy adviser, says that the major reasons for increases in prices are predominantly down to VAT and energy prices rising, coupled with the weakness of sterling for importers.

He adds, ‘Unfortunately, it doesn’t look as if there is going to be any respite from energy hikes any time soon. Oil prices have started rising again having dipped in the summer, and now we have the likes of British Gas raising prices for customers too. On the horizon we have a 3p a litre increase in fuel duty scheduled for January.

‘It could be that we are shaping up for another winter of discontent, particularly if the mercury plunges this winter and firms are hit with huge heating bills and a fall in trade like we saw three years ago. Many firms are already battling the economic elements, but if the weather turns it could spell the end for those already walking a cost tightrope.’

Tight credit restrictions have meant that businesses have not been able to access finance to deal with increased costs and 41 per cent feel that they now have less leeway in coping with business costs than they had last year.

Some 81 per cent of companies indicate that changes in costs have been detrimental to their business, with 66 per cent having reported cash flow issues as a result, while 56 per cent say it has been detrimental to employment levels.

Worryingly, 69 per cent feel that cost hikes have inhibited growth ambitions. According to those business owners quizzed, the future looks set to remain bleak with four in five expecting prices to continue to increase in 2013, and 14 per cent expecting a significant increase.

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