Government support for industry is needed now

Inflation in industry is running at roughly double the retail/consumer indices, and has been for some time.

Material increases have been posted at up to 30% and there is now real evidence of long- term supply contracts for power being withdrawn by suppliers who now desperately need to renegotiate, there’s no price cap protection for industry.

Labour costs are increasing in-line with inflationary settlements, coupled with skills and people shortages driving up the cost of recruitment, and while everyone in the media has been talking about the employees NIC increase, they have ignored the fact that employers have the same increase too in their contributions.

Short supply and constant price rises are driving businesses to invest in higher stock levels and carry higher debtor books, often without the safety net of debt insurance cover as credit levels have been cut by the credit agencies.

If all of this inflationary pressure cannot be passed on to customers with increased prices (note that European governments are supporting the price hikes in their respective countries, to industry), then this at best restricts essential investment plans and at worst jeopardises businesses and the livelihoods of those that work in them.

The UK Government marketing campaign to businesses exercise end user price increase restraint, is unlikely to enjoy success, without some form of stimulus; no properly run business will sacrifice profitability at the level needed, given the level of inflationary pressure embedded in the commercial economic system.

Likewise, a call to invest and improve productivity to reduce costs, won’t be enough without stimulus as there are insufficient funds in post pandemic debt-ridden balance sheets, to do this.

Crowe predicted a cashflow drain for 2022  last summer. Businesses are now repaying their COVID-19 loans but having to also fund increased costs of materials power and overheads as well as an increased working capital requirement.

There is now clear evidence of manufacturers running low on cash reserves and shelving investment and research and development plans which, while strategic and essential to secure long term success in global markets, are secondary to the “survival” mode that many businesses are defaulting to, at present.

Government support is essential and promises of action later isn’t going to have the desired effect. Sooner rather than later, should be regarded as the required recovery strategy.

We said last year that the government should be applauded for the many billions they put into businesses to help get through the pandemic. But that investment would be wasted money if the funding of COVID-19 was not backed up by strong action now, to support businesses, facing the perils attached to inflation and high interest rates, which are just further impeding businesses fighting for recovery.

Interruption to global supply and demand caused by the current situation in Ukraine has made this statement made last year, even more important now.

That all said, businesses cannot wait around waiting for a helping hand; what can be done in the interim?