Readers of Scotland on Sunday got one heck of a jolt when they opened their morning newspaper this weekend. The front page article focused on the massive increase in energy costs being faced in Britain and the especially catastrophic effect on anyone living in rural areas in the far north of Scotland, where geopolitical developments are shaking down for some Scottish families as a Hobson’s choice between food and heat.
“They will freeze or they will starve,” read the headline.
That’s not a choice you expect to have to make in a developed nation such as Scotland, a country many Americans view mostly as a scenic theme park of challenging golf courses and peaty whiskey.
But it’s the bizarre reality in a country already seeing a doubling of energy costs and a projection of further big increases. Instead of focusing on food insecurity, journalists now are exploring the phrase “fuel poverty.”
Rural Scots already pay more for energy, and local politicians are pointing out that many of them work full-time jobs and yet are still are finding themselves unable to heat their homes for the long, dark winter and also feed their families.
North and south of the border, defenders of the great British pub are warning that some 70% of them might not survive the coming winter, again as a result of huge spikes in energy costs. Most pubs are reporting anywhere from 100% to 300% increases in their energy costs, meaning that they now have to sell hundreds of pints a night just to pay off the gas company. Some pubs say they are being told their energy bills are increasing by 500% or more for the coming winter contracts.
Why are these exponential, business-killing increases happening? It’s a perfect storm of issues in the energy markets caused by Russia’s invasion of Ukraine, and the consequent sanctions, a hangover from Brexit, a puttering COVID recovery, massive inflation and the various dysfunctions of the lame-duck British prime minister, Boris Johnson. In particular, the wholesale price of natural gas has soared.
A further part of the problem is that small businesses like independent pubs lack the caps on increases enjoyed by residential accounts and thus utility companies are free to charge as they wish. And once a pub, or any other small business, is dubbed “high-risk,” that Catch-22 can mean they lose access to the most desirable rates.
The pub landlord of the Rose and Crown near Liverpool drew widespread attention on Twitter in recent days by pointing out that his gas and electricity costs were now being quoted at £61,000 (about $73,200) a year, a staggering sixfold increase just since last May. Very few small businesses could survive that kind of cost increase. According to a U.K. trade group, the Federation of Small Businesses, the typical utility bills for small-business owners have increased by 349% for electricity and by 424% for gas just between February 2021 and the current month.
There are plenty of other reasons why pubs become high risk, not the least of which is rampant inflation driving up costs. U.K. inflation rates are significantly worse than in the U.S., running at 10.1% annually, according to a report by the Office of National Statistics, so pubs are facing rising wage bills along with their energy costs.
Simply put, the country is in an economic mess. Fortune magazine noted that Britain was only a currency crisis away (something that could well happen) from mirroring the economy of a developing nation.
Clearly, the U.K. government cannot maintain a policy of capping residential price increases and leaving small businesses to fend for themselves in such a market. There’s little point in helping people heat their homes if they then lose their jobs pulling pints or lose the social center of their lives and the economic anchors of their communities.
But even with the residential cap, the British are seeing huge price increases: Britain’s energy regulator announced Friday an additional 80% increase in household energy bills. That comes on the heels of a record 54% increase in April. Pubs might be facing far worse scenarios but that doesn’t mean many households can pay these bills and continue on with their previous lives.
Unless these issues are addressed in bold fashion, British pubs and restaurants are going to disappear and a whole lot of people are going to be making the kinds of choices between food and heat that are associated with Dickensian images, not contemporary Britain.
The impact of the inflation rate is a cautionary tale for the U.S., and an argument for Federal Reserve Chairman Jerome Powell to stay his course on raising interest rates, the consequent pain notwithstanding. There is no point in forgiving student loans, for example, if any benefit to recipients is immediately eaten up by rising costs.
