21 December 2022

Uncertainty surrounds impact of cost-of-living crisis among rural businesses

Insights for evidence submission

The rising cost of living is a feature of our everyday lives, from increased energy bills to higher prices in the supermarket, but how is it affecting rural businesses specifically, asks Matilda Fitzmaurice, a Research Associate at Newcastle University Business School.

As part of NICRE’s submission to the All-Party Parliamentary Group on Rural Business and the Rural Powerhouse’s Inquiry into the cost of living in rural areas, I interviewed 13 small rural businesses from a wide range of sectors across England about their experiences of the cost-of-living and energy crises. A striking theme was the widespread uncertainty about their impact so far. Many said that the crisis is still at an early stage, or that they won’t know about energy price increases until 2023, when many will renegotiate their energy tariffs.

For rural accommodation providers, the uncertainty was due to the winter season and their reliance on people’s disposable incomes. One such business in County Durham told me that January 2023 would be ‘the test’, as this is when people traditionally book summer holidays. Some expected that demand at the higher end of the market would remain reasonably strong, as well as for businesses providing essential services, such as broadband installation.

What can small rural businesses do about the crisis? For some, not much

NICRE evidence from the Covid-19 pandemic has demonstrated that rural businesses have previously shown resilience and adaptability in response to adversity  and this crisis seems no different. I heard from firms about cost-cutting measures such as scaling back training budgets and delaying replacing equipment or employing staff. One business in North Yorkshire told me they had moved to being home-based as a ‘direct result of the cost-of-living crisis’, to cut rental and energy costs.

What’s more, businesses’ experiences of the pandemic have influenced their capacities to respond. More home- and hybrid working has made adaptation easier, but this requires high-quality broadband, which can be problematic in rural areas, as demonstrated by the findings of NICRE’s rural business survey. Without it, some rural businesses risk unsustainable transport and fuel bills as they continue to commute to the office or to clients.

Despite higher costs, some businesses told me that they had not increased their prices with inflation, in order to stay competitive and maintain longer-term demand. Others had implemented pay rises, either because it was already company policy, or to retain their staff. Importantly, not all rural businesses can mitigate the crisis. I was struck by how many businesses – often small accommodation providers – said there was little they could do to reduce costs. Their major outlays are energy and food, and customers naturally expect to be warm and fed. One B&B owner in Northumberland explained that she continues running the heating because ‘you don’t want that bad review on TripAdvisor’.

While these interviews are a snapshot, they indicate that businesses without mains gas feel forgotten in the cost-of-living debate. Many rural properties in England, including businesses, rely on heating oil or Liquified Petroleum Gas (LPG). Unlike regular gas bills, the prices of these are unregulated and thus unpredictable: one small business in Northumberland told me that ‘you do not know what it’s going to be next week, the week after […] with the heating oil, there’s just nothing you can do, you have to trust the market’.

As our evidence has shown, many rural businesses are living with considerable uncertainty about how much the cost-of-living crisis will affect them and close attention will need to be paid as it unfolds. What’s more, not all rural businesses have the same capacities to weather the crisis.

Meanwhile, we already know that energy cost-saving and cutting carbon emissions go hand-in-hand, with many businesses highlighting the measures they are taking in this regard in our interviews which fed into our submission. This crisis therefore presents a real opportunity to engage businesses with the decarbonisation agenda and stay tuned for another blog post about rural enterprise and decarbonisation in the new year.