Businesses, by virtue of being capitalist enterprises, are, or ought to be, cost-conscious. However, recent events have made the imperative that much greater.
Since Labour was elected in 2024, taxes have increased: on employment, dividends, business disposals, and elsewhere. Similarly, customers are poorer as they, too, are paying more in tax, either through higher rates or fiscal drag. The two together means businesses have had to become much leaner.
But now comes a new threat – the US/Israel attack on Iran. Without being drawn into the politics, the reality is that the war has caused a shock to economies around the world, especially as oil and gas exports from the Middle East have been strangled by the closure of the Strait of Hormuz.
The concern is that energy costs feed into all aspects of life, from transport and raw materials to utility bills and margins.
In the UK, retail sales fell in February, highlighting the fragility of consumer spending even before the latest global energy shock began to take hold. Data from the ONS showed sales volumes fell by 0.4% during the month, reversing a 2% increase in January. The data for March, when it’s released, will likely be just as illuminating.
Similarly, data from the Weil European Distress Index found that financial pressures on European companies had already moved into “distress territory” before the attack on Iran. Consequently, firms have far less capacity to absorb another energy-driven shock after the attack on Ukraine by Russia.
The index, compiled by US law firm Weil, Gotshal & Manges, tracks the performance of more than 3750 listed companies across Europe using indicators such as cash flow pressure, debt levels, and returns on investment. It was 2.5 before the current crisis, against -7 in February 2022, just before the Russian invasion, indicating a marked deterioration in corporate resilience.
It’s worth noting, too, that LBC published a story early in March reporting that small firms were “quietly absorbing costs for customers,” but wondered how much longer that could go on. It noted that during the Spring Statement, the chancellor said: “Stability is the single most important precondition for economic growth.”
However, with inflation still yapping at the heels of business, employer National Insurance contributions up, business rates relief cut, and Making Tax Digital, SMEs are being assaulted in every direction. Growth was downgraded to just 1.1% this year and will surely be much lower once the official numbers are crunched.
The real worry is that, as LBC commented: “operating costs have surged for 82% of small business owners over the past 12 months. However, only 12% have chosen to raise prices in line with their increased costs.” This may keep customers happy and help firms to stay competitive, but it is not sustainable.
Another survey – published toward the end of March by Novuna Business Finance – found that 67% of small businesses were still working “to strengthen and grow over the spring months, although plans to hire new staff (only 14%) hit a new five-year low.”
But it also said that while 84% of small businesses started 2026 with hopes of growth this year, the first quarter proved to be challenging. Not unsurprisingly, Novuna’s data found a 65% peak over four years in the percentage of small businesses prioritising keeping fixed costs down.
Of course, the need to control costs is nothing new, and it’s not hard to find commentary on this.
Back in 2008, Personnel Today reported that UK firms were taking action to cut costs and preserve cash flow as the fear of a serious downturn took hold. According to a survey of 500 small and medium-sized businesses by chartered accountants and business advisers MacIntyre Hudson (now MHA), the research found that 84% felt that there had been a significant deterioration in the overall economic climate for businesses over the last 12 months.
That story was published during another crisis, one that followed the US-subprime lending global financial meltdown.
While bad news sells newspapers, it reinforces the need for businesses to keep a firm lid on costs at all times. So, the advice for businesses is simple. Keep an eye on delivery charges, plan for supplier price increases, consider alternative suppliers, aim to become more energy efficient, and review costs frequently.