Britain’s rural economy is faltering. Hoteliers, hoteliers and farmers up and down the country are warning that the cost shock caused by the Iran war has put thousands of small businesses in what one Somerset operator described as “total survival mode”, and that, without urgent intervention from the Treasury, the pain will surely be passed.
As diplomats in Washington and Tehran move toward what officials describe as a “highly negotiated” peace deal, the damage is already done. Retailers are reporting fuel bills running tens of thousands of pounds a week higher than at the start of the year. Farmers say that the economy has changed so much that some are quietly selling packaged fertilizer instead of using it to farm. And in Britain’s off-grid hotels, the cost of a liter of heating oil almost doubles within a fortnight.
It’s probably, by any measure, a problem with the cost of doing business on the books, and one that falls squarely on the young workers who keep rural Britain ticking over.
76 percent of the fat is burned, overnight
Shaun Whitehouse, owner of the Lanes Hotel, a 35-room boutique property in Somerset, has worked in hospitality for almost a century. He says he has never seen anything like this.
“We are fighting to keep our heads above water,” he told Business Matters. The price of heating oil at the hotel, which sits outside the national gas grid, has risen from 81p to 143p a liter in the space of two weeks – up more than 76 per cent at a time when his salary has been increased due to the national living wage increase and his business rates bill has risen again.
“There is not much we can do. We have to burn the place, and the water, so we just have to absorb it,” he said. “Today I work three jobs; seven days a week for this and not being able to pay myself enough money at the end of the month is painful.”
His frustration with Whitehall is not hidden. “It seems like rural communities have just been swept under the carpet by the government … that’s the post-pandemic feeling when this happens.”
It’s a story played out across the off-grid Hospitality sector, where operators have been navigating energy procurement as a strategic boardroom issue for a long time, but where the speed and scale of recent moves have left even savvy buyers exposed.
‘Big’ expenses on the farm
In the village of Hodder, on the Lancashire-Yorkshire border, Rod Spence farms 1,000 acres and runs a butchery. Arithmetic, he says, has gone “too big”.
“We’ve just come out of lambing season. Even the price of fuel is £10 to £15 more a day just to check the sheep,” he said. “Contractor costs are going up because of the price of fuel, and fertilizer is down a lot. Feed prices are up because it’s more expensive to deliver. If you live in a rural area, it’s ten miles to the nearest garage, so those extra costs to get gas for quad bikes all add up.”
The distortion of the field gate is the most dangerous of all. “I’ve listened to some of these cereal guys saying, ‘Well, we’re going to sell fertilizer instead of growing crops because there’s a definite profit.
Like many family businesses, Spence relies on variety, the butcher shop, the imitation clay pigeon, the fencing arm – to keep sales prices steady and protect customers from the worst input shocks. How long that can last is another question.
A short drive away in Clitheroe, Charles Bowman, who runs the Inn at Whitewell, said heating oil and gas had risen by around 30 per cent over fixed price contracts agreed over the past six months. “We are facing an increase in living wages, now we are in trouble,” he said. “It looks like the chancellor is strangling us.”
£40,000 a week, and rising
The picture of road transport is not so clear. The Road Haulage Association says fuel costs are up almost 40 per cent on pre-conflict levels, with the cost of filling a tank for 600 lorries up by £300, and a tank for 300 coaches by £150.
“For workers in our position, this could be the difference between work and closure,” the trade body said, citing one member who now earns an extra £40,000 a week on fuel alone. Coaches typically pocket between £15,000 and £20,000 more.
It’s a standard ploy in an industry where margins have been wafer-thin for years; Business Matters has previously reported on hauliers claiming £20,000 a year in debt to keep one lorry on the road. This time, that number is eclipsed during the week.
Tina McKenzie of the Federation of Small Businesses warned that the impact goes beyond the firms that own their fleets. “The high cost of fuel affects all businesses, even if they don’t have their own vehicles,” he said. “Rising fuel costs depress economic activity and increase the risk of a recession, which we as a country cannot afford.”
The FSB is calling for a 5p per liter petrol tax to be temporarily waived, a move which the organization has argued would bring faster, wider relief to the country’s 5.5 million small businesses.
Broad pressure: contracts, prices and wages
The fuel shock is hitting a sector that is already weak due to excessive cost pressures. Ofgem estimates that up to 10 per cent of UK businesses were forced to renegotiate fixed-price energy contracts in March and April, with another 10 per cent up for renewal in May and June – locking thousands of SMEs into high levels just as oil prices rise. According to industry estimates, some 180,000 firms have already signed expensive power deals since the start of the war.
Many of those same workers were already participating in national wage increases and business rate increases. The cumulative effect, as Business Matters reported earlier this year, has already prompted hotel firms to cut shift hours by nearly a third as they adjust to survive.
Kate Nicholls, chair of UK Hospitality, said several of her members “were already seeing price increases, particularly those coming to the end of fixed-term contracts.” He added: “Inefficient rural and leisure businesses will be hit hard by the increase in heating oil prices. Ultimately, it will result in higher prices, further fueling inflation.”
A big warning
Ms Nicholls’ point goes to the heart of the larger issue. The International Monetary Fund has warned that Britain will be the worst-hit economy since the Iran war, and is on course to join G7 inflation this year and the United States. The Bank of England, which held the base rate at 3.75 percent last month, has indicated that further tightening is inevitable if inflation continues; one prominent think tank is now penciling in inflation rates above 4 percent.
British households have already started to focus, reducing pension contributions and increasing essential savings in anticipation of future higher rates. The cost of filling up a standard 55 liter car has risen by £14 since the conflict began; a tank of diesel now costs £27 more.
For now, the country’s rural SMEs, freight forwarders, food-producing farmers and off-grid hotels that accommodate tourists, are buffering the shock. Whether they can continue to take over is the question that should be testing ministers this week.
As Whitehouse puts it at his reception desk in Somerset: “We just live day by day and keep putting out fires.”
