Small and medium-sized UK enterprises have been grappling with stubborn inflation, higher interest rates and staff shortages since the Covid-19 pandemic.
The directors of three companies from the hospitality, manufacturing and engineering sectors describe the challenges they face and give their verdict on chancellor Jeremy Hunt’s Autumn Statement.
Hospitality: Arros QD
“We’ve got a cost of living crisis and our consumers are facing a tough environment,” said Sarah Winter, co-owner of Arros QD, an upmarket Spanish restaurant in London’s West End that opened in 2019.
Rising prices and a lack of workers have been key problems confronting the hospitality sector this year, according to Winter.
On Wednesday, Hunt announced cuts to the national insurance rates paid by employees and the self-employed.
But Winter said these relatively small personal tax reductions would not be enough to get consumers spending. Giving median earners an extra few hundred pounds a year “isn’t exactly going to change their lifestyles when their bank interest and utility costs are through the roof”, she said.
Hunt’s decision to extend business rates relief for the retail and hospitality sectors — worth up to £110,000 per business — would be a help to Arros QD but the tax continues to irk industry.
“I’m not sure it’s particularly fair on hospitality or retail for that matter,” said Winter, adding that she would have liked to see more support for businesses to deal with energy costs. “I didn’t hear anything on that,” she said.
The recruitment and retention of staff is likely to remain a headache for the sector. Arros QD, which employs about 35 people, is open seven days a week but was closed on Mondays until recently. “It’s been difficult to find the staff since Brexit, frankly,” Winter said.
High inflation had made the situation worse, she noted. “Pay does keep going up as you have competition for people,” she said, adding that a change in immigration policies to help fill a wider array of roles in understaffed sectors “would be really helpful”.
Winter also wants ministers to resolve labour disputes, saying transport strikes have resulted in more people working from home, hurting city centre hospitality businesses.
Having very little turnover on some days “makes it incredibly hard and really does put businesses at risk”, she said. “The government’s stubbornness in dealing with this effectively does not help us.”
Manufacturing: Goodfellow
Simon Kenney, chief executive of Goodfellow, said his Cambridge-based company was growing well but had faced “a turbulent environment over the last few years”.
The 120-person scientific materials business supplies metal, plastic and ceramic components to clients with specialised requirements. Its products are used in everything from satellites to medical instruments. Customers include Rolls-Royce and Cern, the Switzerland-based nuclear research organisation.
Hunt’s Autumn Statement included £4.5bn of funding for “strategic manufacturing sectors” over a five-year period from 2025, which Kenney said should be the start of a broader, “joined-up” industrial strategy.
“There’s lots of talk of artificial intelligence and innovation and how this is going to impact business. I’d like to see that all pulled into some kind of long term vision or long term plan,” he said.
Kenney welcomed the government’s extension of the full expensing regime, allowing companies to deduct capital expenditure from their tax bills; his was one of 200 businesses that had written to Hunt calling for the change. He also praised plans to simplify tax credits for research and development.
Kenney said the cut to national insurance was “a good thing, as long as it doesn’t drive up inflation”, which has increased costs for Goodfellow and its staff.
He said increasing the national living wage risked having a knock-on effect on other workers’ pay, which could be “an inflation driver”. But the Office for Budget Responsibility’s forecast that Hunt’s measures would push down inflation was “a real positive for businesses”, he added.
Most of Goodfellow’s parts are exported. While Kenney acknowledged that his private equity-backed business was in the “privileged position” of operating in a growing market with relatively high margins, trading with Europe has become more complex since Brexit. US steel tariffs had made it harder to sell into that country too, said Kenney, noting that a trade deal would help.
More action was needed to cut the administrative burden on business, he said. UK export licences can take six months to come through and Goodfellow’s compliance team has tripled to six people, which Kenney said illustrated the delays and costs his business has had to absorb. “I can give you a list of about 100 different issues that we have from a compliance perspective.”
Engineering: PP Control & Automation
Tony Hague, chief executive of PP Control & Automation, would have liked Hunt to announce a reduction in corporation tax, which rose from 19 per cent to 25 per cent this year.
Hague, whose business in Walsall in the West Midlands makes systems used by machinery manufacturers, was also hoping for loans or grants to support capital expenditure by businesses. He said measures aimed at encouraging investment in areas such as automation and robotics could boost productivity.
Hunt on Wednesday announced that he would make permanent the full expensing capital allowances regime, which had been introduced temporarily in March.
It allows companies to immediately deduct the cost of investments in IT equipment, plant and machinery from their taxable profits, reducing the amount they pay to the exchequer by up to 25p for every £1 spent.
Hague, whose business employs 230 people, said he supported the extension of full expensing. He also welcomed the announcement of a new West Midlands investment zone and funding for more engineering apprenticeships.
Supply chain disruption has posed a big challenge to PP Control & Automation since the pandemic, but problems have eased more recently. Hague said inflation has been another source of difficulty, while higher interest rates had increased financing costs.
“We’ve had to accept multiple price increases from suppliers so our input costs have gone up,” said Hague. “Labour costs have obviously increased more than normal to keep track of inflation. Energy, transport — in just about everything we’ve seen increases.”
The recent fall in inflation to 4.6 per cent had been positive, Hague said, adding that the government would have to “tread a fine line” between slowing runaway prices and choking economic activity.
Overall, Hague felt Hunt had done “as much as he could” given the fiscal backdrop. “Nothing I saw made me think ‘oh my God, it’s like a Liz Truss moment — what the hell are they doing?’,” he said, in a reference to the former prime minister’s “mini” Budget last year.
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