Facing inflation: “Operational costs will need careful scrutiny”

While the Government has introduced measures to support UK households to combat the cost of living, business leaders have raised concerns about the effects of rising cost pressures on the High Street.

In May, the Chancellor of the Exchequer, Rishi Sunak, introduced a grant for all UK households to reduce energy bills by approximately £400 from October. Measures also included an additional payment for low-income households, and extra funds in November or December for households that receive the Winter Fuel Payment.

Revealing the context for the support, the Chancellor said in the House of Commons: “This country is now experiencing the highest rate of inflation we have seen for forty years. The Bank of England expect inflation to average around 9% this year.”

The Chancellor cited supply chain disruption following COVID-19, combined with Russia’s invasion of Ukraine, as contributing to rising costs.

Reacting to the announcement, Hannah Essex, co-executive director of the British Chambers of Commerce (BCC), said it was “absolutely right” to provide the support, but added: “For business, the toxic mix of inflation, raw material costs and supply chain disruption is the flip-side of the coin to the problems facing consumers.”

Essex warned: “Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressures on the economy and quickly eat into the financial support.”

The BCC has suggested that a reduction in VAT on businesses’ energy bills could alleviate some of the pressures.

The Federation of Small Businesses (FSB) has also suggested that cutting VAT “would stimulate growth and consumer confidence without adding to inflation.”

Ahead of the Chancellor’s announcement, chair of the FSB, Martin McTague, had expressed that: “The cost of living crisis starts with a cost of doing business crisis.”

He added: “The prices that small firms pay for inputs are running well ahead of consumer prices – business are trying to absorb the difference, but many are being left with no choice but to pass costs on.”

Responding to the Government’s measures for households on Twitter, McTague said, “support for vulnerable consumers is vital,” however, he cautioned: “The absence of protection for vulnerable micro businesses outside the cap is still stark, despite our best efforts… More will be needed.”

Earlier this spring, OT explored the reports of rising cost pressures for consumers and businesses, with AOP Councillor, Tushar Majithia, optometrist and director of Lunettes Opticians, saying: “The rising costs of living look likely to place significant challenges on our business over the coming months and years.”

Nicola Gatehouse, director of Ball & Gatehouse Opticians, shared with OT that gas and electricity prices for the practice have doubled.

“The extra money has to come from somewhere, so although I haven’t put prices up yet, I think I’ll have to,” she explained.

The practice has been busy in the months following the lifting of restrictions, but June has marked the first month with a downturn in patients booking appointments.

Gatehouse suspects this is either due to the cost of living crisis, or as families save for holidays, now that travel is more feasible following COVID-19.

Martin Ashcroft, chief financial officer at Hakim Group, also told OT: “Generally, inflation is running at quite a high level. The end result of that is the operational costs will need careful scrutiny for all practices to minimise erosion of profitability.”

He noted that a number of factors occurring in the past 24 months are causing “ripple effects over the near term,” including the impact of government support, and the knock-on effect that various lockdowns have had on recall.

“From a general trading environment, this is probably a bit less predictable than it’s been for a long time,” Ashcroft acknowledged.

However, the resilience of optometry could support practices through this period.

Ashcroft shared that, aside from the current challenges, “the good thing about optometry is that we are in quite a predictable industry.”

“The industry enjoys strong patient loyalty, especially within independents, therefore the underlying business is still reasonably predictable compared to mainstream retail,” he said.

Is your practice seeing the effects of rising costs and inflation? If you would like to share your story, get in touch with Optometry Today through the newsdesk.