There is concern among SMEs as their costs rise while they argue that the Government is not giving them enough support, fearing the winter ahead.
Written by Miguel Marinovic Sfeir.
The cost of living has increased over the last couple of years. First, the pandemic – besides slowing down the economy – meant financial help and the injection of significant amounts of money for citizens and businesses, devaluing it. At the same time, access to goods was limited as exports and imports decreased. Then, the Ukrainian war and the sanctions on Russia, a huge oil producer, made energy and production more expensive. A combination of these factors is moving the world towards an economic crisis.
A common symptom is high inflation, which makes a living less affordable. The ones most affected by the rise in prices are the poor and, in business, the small to medium enterprises (SMEs).
A recent survey conducted by BDO and Ibec revealed that the biggest challenge for Irish SMEs is the demand from employees for increased salaries — 32% of the surveyed SMEs cited it as their major concern. The second one is the inflationary pressures impacting their margins (29%).
The rising energy and commodity prices are threatening businesses and consumers. The Irish SME Association (ISME) called on the Government to provide more significant support for SMEs, arguing that while it has tried to mitigate the rising energy costs for consumers, the measures announced will not be sufficient to avert a crisis during winter.
ISME is aware that businesses are facing cost increases of 100% or more in their monthly bills, which will affect their customers too. Although the Government announced a reduction in the VAT rate on gas and electricity from 13.5% to 9% until October 31st, a large energy price increase is expected afterwards.
Neil McDonnell, Chief Executive of ISME, said: “The inevitable price inflation from energy cost increases can only be moderated if there is Government intervention to mitigate the impacts on small business. We will need a scheme of direct support for small businesses, similar to the COVID-19 Restrictions Support Scheme (CRSS) during the pandemic. The cost of Government inaction will be far higher in terms of business closure, and we also need to see an explicit Government strategy to avert another energy crisis in the winter of 2023.”
According to Mr McDonnell, the Irish Government does not understand that the heating requirement for many businesses, for example, manufacturing ones, means spending a lot of energy. He argues that the Government is not doing enough compared to the rest of the EU. The Government’s allocated funding to shield households and businesses from the energy crisis is the second lowest after Denmark. On the other hand, Greece will give energy subsidies for about 1.9 billion euros in September, absorbing up to 89% of the rise in monthly power bills for SMEs.
Small businesses do not have the purchasing power of big companies and invariably pay higher unit costs for energy. According to ISME, the industries most affected will be retail, distribution, hospitality, manufacturing and food processing.