£500 hit for households: small firms face ‘price rise or close’ crisis

Britain is heading for a fresh cost-of-living blow, with soaring energy prices set to wipe out any gains in living standards this year. New research warns households will be nearly £500 worse off as rising fuel and business costs ripple through the economy. For small firms already on the brink, it’s a brutal squeeze—forcing owners into an impossible choice: hike prices and risk losing customers, or shut their doors for good.

The surge in energy costs from the Iran war will cost a typical UK household almost £500, new research from the Resolution Foundation shows. The knock-on impact will hit small and micro businesses, that depend on households having money to spend, particularly badly.

The Resolution Foundation has calculated that rising energy prices are likely to wipe out living standards growth and reverse it into the negative. That’s because the increased cost of energy bills for businesses, and of petrol at the pump is being passed onto households. Raising prices is the last thing any small business owner wants to do but given the relentless hikes in business costs driven by policy changes such as minimum wage, business rates and tax increases, topped up by energy and fuel rises, most have little option. The choice now for many is between increasing prices or shutting up shop.

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The typical household is set to see its income fall by 0.6%, or around £480, over this financial year. Before the Middle East conflict erupted, they were forecast to see their income rise by 0.9%. Average income growth for the poorest fifth this year is now set to be just 1.2%, down from 2.8% forecast before the conflict. That 1.2% income growth is being gobbled up by those rising bills so ultimately there’s less money to spend.

There’s a crisis looming for households. The knock-on impact will be most pronounced on small and micro businesses. What adds to the pressure and needs to be factored in is that the same households that are now expecting to go into reverse when it comes to living standards growth are often dependent on those small or micro businesses for their income.

If the businesses struggle, they tend to cut their own salaries rather than lose valuable employees so there’s the triple whammy of rising business costs, reducing household income from the business and rising prices for the households, all conspiring to drive the smallest businesses to the wall.

Lasting resolution of the conflict is urgent but the impact will linger.