Why Harrogate businesses fear perfect storm of pressures ahead as cost of living crisis bites

Steam cleaning and jet washing - Harrogate BID's cleaning team blitz the town centre

In the week that saw the tax burden on employees rise to the highest level for 70 years, employers in the hospitality sector told the Harrogate Advertiser they were already seeing a decline in footfall in the town in a perfect storm of financial problems.

“After two years of Covid, businesses are facing even more challenging times,” said David Simister, Harrogate District Chamber of Commerce's Chief Executive.

“Speaking with members in the retail sector, last week was noticeably quieter compared to previous weeks, which could be because shoppers have already begun tightening their belts.

“The cost of doing business is going to rise steeply this year, and price rises are inevitable.”

The local impact of rising inflation and soaring energy prices nationally was spelt out by a cafe owner on Commercial Street, one of Harrogate’s bastions of small independent businesses.

Phil Dolby co-owner of Bean & Bud cafe and speciality coffee shop, said: “In terms of footfall, we have definitely seen a decrease on Commercial Street this year.

“The combination of Omicron, then terrible weather and, now the cost of living crisis has resulted in fewer people being out and about.”

Sara Ferguson, chair of Harrogate Business Improvement District (BID) and a town centre hospitality business owner, admitted businesses faced a “bumpy ride”.

“I’m under no illusion that businesses are in for a bumpy ride,” said Mrs Ferguson.

“Unfortunately, the added costs that we are all incurring, will be passed on to customers. If not, it may become uneconomical for some businesses to continue.

“While the minimum wage has gone up, there is also the added pressure of staffing problems, and struggling to attract employees into various sectors, including hospitality.”

This week’s 1.25% rise in national insurance has added to the stresses facing Harrogate’s retail and service sector - even if the Government’s pledge to put the extra £39 billion raised over the next three years into health and social care has been welcomed in general.

David Simister of Harrogate District Chamber of Commerce said: “In addition to the rise in energy prices, the national Minimum Wage has gone up, so too has National Insurance, VAT in the hospitality sector, and petrol – even though there was a small cut in fuel duty. Inflation is adding further pressure and for bigger businesses, Corporation Tax is also rising.

"The Chancellor did very little for ‘the now’ in his Spring Statement.

"Instead he promised tax cuts as we get closer to a general election."

It’s the timing of the tax rise when combined with other negative economic factors which is causing alarm bells to ring across Harrogate - businesses who had hoped to bounce back quickly after two tough years during the pandemic, now face an uncertain future.

Phil Dolby of Bean & Bud cafe said the return to 20% VAT on April 1 for businesses had felt almost like a punishment.

“The biggest impact on our business has been the return to 20% VAT, which feels almost punitive as we are still trying to catch up after Covid,” said Mr Dolby.

“Put simply, for a business like ours, the difference between 5% and 20% VAT equates to a full-time wage.”

Paul Rawlinson, director of Baltzersens Ltd which owns the Scandi-themed cafe and coffee shop on Oxford Street, said VAT was part of a picture of growing financial stress.

“For colleagues in the hospitality sector the squeeze on customer incomes is unfortunately timed,” he said. “It is impacting as we deal with VAT returning to 20%, sharp wage increases and the increase in Employers National Insurance contributions.

“We’ve had multiple increases from ingredient suppliers, energy prices are a challenge, petrol prices remain high and waste companies have brought in a fuel surcharge for emptying the bins.

"Price increases are going to be inevitable for most operators.”

Ian Fozard, director of Harrogate independent brewery Roosters located on Hornbeam Park, said he expected beer prices to have to rise if the squeeze continued.

“We increased our prices by a modest amount in February, before the current crisis hit hard,” he said.

“I’d like to think that we can hold out for as long as possible but we may have to look at this again later in the year.

"As well as “general inflation”, like many manufacturing businesses, some specific input costs have increased significantly.

"Our Malt prices increased by 12.5% this year but we are advised that the Ukrainian crisis, which will majorly impact this year’s grain harvest, will also put high upward pressure on all grain prices next year as well.

"In addition, the overall energy price rises have impacted on CO2 pricing, causing a doubling in price.

"Fuel price increases obviously add to the burden."

The Harrogate business owners and leaders the Harrogate Advertiser spoke to were uniformly critical of Chancellor Rishi Sunak’s Spring Statement for what they said was a lack of action over both the cost of living crisis and the cost of doing business - despite the promise of tax cuts closer to a general election.

Phil Dolby of Bean & Bud cafe said: "If the Chancellor was truly serious about saving jobs in hospitality he would keep VAT in our sector at 5%.

"Hopefully things will improve as we get into summer, but the ‘feeling’ is that we have tough times ahead."

But with a strong independent sector, a reputation for high standards and a revival in the visitor economy since lockdown ended, Harrogate is not taking the crisis lying down.

Ian Fozard of Roosters said: "We have managed to lock into long term contracts for our energy but these are at much higher rates than previous rates.

"We are now seriously looking at every energy-related input to see how we can cost-effectively, mitigate this.

"“I can see a situation arising where customers may begin to ration their leisure spend and, perhaps, have to make some hard decisions about their priorities.

"But, if you can offer a first-class consumer experience, then I would like to think that this will generate a certain amount of customer loyalty."

Harrogate BID is looking at ways in which it can help reduce members’ costs, including energy and commercial waste bills.

It is also offering grants to help businesses improve their frontages which, it says, in a number of instances will more than cover the levy paid each year by businesses located in the BID area to fund its work.

Paul Rawlinson of Baltzersens says supporting the independent sector remains the key to Harrogate’s future survival.

“We’d echo what we’ve been saying for years which is do what you can to support the indies that you love,” he said.

“Spend your money with them, comment and like a social media post or recommend them to friends, family and colleagues. It all helps.”

Cost of living crisis: What are the top ten factors

UK inflation currently stands at a 30-year high of 6.2 per cent with economic experts predicting it could hit as high as eight per cent this year.

A national insurance increase of 10 per cent.

Soaring demand for oil and gas since lockdown rules stated to ease in 2021 coupled with worries over the impact of sanctions on supplies from Russia after the invasion of Ukraine which has pushed up energy prices up internationally.

Energy price cap raised by 54 per cent, with a nearly £700 annual rise in bills for anyone paying by direct debit.

Council tax rising by around 3.5 per cent, meaning those in band D could pay around £2,000 annually.

A freeze on the income tax threshold, meaning a real-terms cut in take-home earnings for most.

An increase in water bills by an average 1.7 per cent.

The biggest increase in rent prices for social housing tenants in more than a decade.

A benefits increase of just 3.1 per cent, well below the rate of inflation.

The decision by the Government to cut universal credit by £20 per week last October after its temporary rise during Covid.

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