Cost of living
Call to cap rates and invest as inflation hits 10.1%
Business leaders have called for investment in energy supply to ease global price shocks, together with a cap on business rates as inflation hit 10.1% in the year to July.
This was up from 9.4% in June and well above analysts’ predictions of 9.8%. It is the highest rate since 1982.
Higher food and transport costs are the key factors. Food inflation is running at 12.6%, according to the Office for National Statistics.
Separate data from the Scottish Retail Consortium showed that Scottish retail sales flatlined in August as a modest rise in the value of sales was wiped out by the impact of record rising inflation.
Alpesh Paleja, CBI lead economist, said: “The cost-of-living crisis is now very real for both households and businesses, so there needs to be a concrete way forward to support vulnerable groups with higher energy bills.
“But we also need to think about the longer term: incentivising investment in the energy transition is key to reducing our exposure to global price shocks, and bolstering the UK’s energy security.
“Taking overdue actions to shore up potential growth – for example, adding immediate flexibility to the Apprenticeship Levy for one year – will also build resilience to price pressures over the long term.”
Helen Dickinson, chief executive of the British Retail Consortium, said: “With inflation showing little sign of slowing, retailers could face a 10% hike in their business rates bill in the coming year.
“This would impose a cost-nightmare of hundreds of millions of pounds on retailers who are already struggling with razor-thin margins. The next Prime Minister must act, freezing the multiplier to avoid placing a further burden on retailers, and the customers they serve.”
Responding to concerns over business rates, David Lonsdale, director of the Scottish Retail Consortium, added: “The Scottish Government’s spending review suggested the business rate may rise next Spring.
“Given the weakness in consumer demand, sluggish footfall, and spiralling cost of doing business, any further hike in Scotland’s business rate – already at a 23-year high – needs to be knocked firmly on the head.”
Marc Crothall, chief executive of the Scottish Tourism Alliance, said: “The lowering of VAT rates, a freeze on the energy price cap and the introduction of a price cap for businesses plus extended relief on business rates are just some of the measures we would urge governments to implement and do so immediately before we see a wave of business closures and job losses.”
British Chambers of Commerce director of policy and public affairs, Alex Veitch, said: “The Government should act and has levers to pull to give vital support to businesses now.
“The two immediate and impactful choices would be to review and reform the Shortage Occupations List to help fill the 1.3 million job vacancies; and bring businesses’ energy costs down by lowering the VAT rate from 20% to 5%.
“It’s time for action and we’re offering solutions. It’s time for Government to listen.”
AJ Bell financial analyst Danni Hewson, said the inflation trajectory pointed to further hikes in interest rates.
“Unlike the US, where there is evidence surging prices have started to peak, inflationary pressures look pretty entrenched in the UK with further increases in energy prices still to come.
“The inflation reading will only add to conviction that the Bank of England will hike rates a further 50 basis points at the next opportunity – providing consumers with a double whammy of rising food and energy bills as well as higher mortgage costs.
“Expectations for higher rates prompted strength in the pound. That’s typically not helpful for the FTSE as it is stuffed full of companies that do business abroad, meaning strong sterling hits the relative value of these overseas earnings.
“Banks were notable risers on an anticipated benefit from a continued increase in interest rates.
Chancellor Nadhim Zahawi said: “I understand that times are tough, and people are worried about increases in prices that countries around the world are facing.
“Although there are no easy solutions, we are helping where we can through a £37 billion support package, with further payments for those on the lowest incomes, pensioners and the disabled, and £400 off energy bills for everyone in the coming months.
“Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth.”
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