Cost of doing business: letter to UK Government

Rt Hon Kwasi Kwarteng MP
Secretary of State for Business, Energy and Industrial Strategy
House of Commons
London
SW1A 0AA

August 2022

Dear Kwasi,

I write to notify you that I have taken on responsibility for the Finance and Economy portfolio whilst the Cabinet Secretary, Kate Forbes, is on maternity leave.

I look forward to working with you and, while I appreciate there may be some limitations on the business of the UK Government pending conclusion of the Conservative leadership process, I am open to engagement with you through this period. I also appreciate the value of the on-going dialogue between our respective officials.

There is one urgent issue I would wish to take the opportunity to raise given its importance to the economic recovery following the Covid pandemic and how that is significantly hampered by the current environment of high cost of living/cost of doing business. 

In regular dialogue business organisations and leaders tell us that these cost pressures arise from: direct energy and fuel cost increases, consequential impacts on supply chain and materials, rising staffing costs, exacerbated by some skills shortages/competition and employee inflationary pressures, emerging anecdotal evidence of rental increases for premises and falling consumer demand. More recently they say that some businesses are beginning to have conversations about trading down and generally reducing production capacity. We are already seeing growing pressure on cash-flow, leading to less availability of funding for crucial investment in growth activities and, without further intervention, the business organisations say they expect a rise in business failures.

We are now beginning to see robust evidence which confirms their concern. The most recent survey evidence from the Scottish Business Monitor, published on 28 July by Addleshaw Goddard and Fraser of Allander Institute, found that two-thirds of firms in Scotland now anticipate economic growth will be weak, 40% expect to reduce operations this year because of higher energy prices, and 86% of those with vacancies are struggling to fill them. I expect these issues apply across the UK as a whole.

Within a limited budget, the Scottish Government has provided significant support for families and the most vulnerable. This financial support is expected to also indirectly support communities and local businesses. However, in conversations with business the specific support they need most falls within the powers and capacity of the UK Government. 

Among the measures businesses are seeking to help address these concerns are energy price caps, VAT reduction on business energy bills, expansion of shortage occupation lists, and support in handling business debt. I would, therefore, seek your consideration of the following: introduction of Energy Price caps, particularly for micros and SMEs as well as VAT reduction on business energy bills, expansion of shortage occupation lists to enable improvements in filling vacancies from overseas, support in handling business debt including extension of CBILS and other loans, setting a lower overall level of VAT and pausing the National Insurance increase and implementation of the Social Care Levy. 

Without additional support from the UK Government, the issues highlighted will be exacerbated and we are likely to see continued reduction in growth and profits. Without further intervention, we expect to see an overall rise in business failures where there are insufficient reserves to sustain operating at a loss, or whose business models become unviable because of the rapid increase in costs.

I would urge you to take action on all or some of the interventions requested by business and sectoral leaders, and would welcome early discussions with you on this important matter.

John Swinney