Britain’s rural economy is buckling. Hauliers, hoteliers and farmers up and down the country are warning that the cost shock unleashed by the Iran war has tipped thousands of small businesses into what one Somerset operator describes as “total survival mode”, and that, without urgent intervention from the Treasury, the pain will inevitably be passed on at the till.
Even as diplomats in Washington and Tehran inch towards what officials describe as a “largely negotiated” peace deal, the damage on the ground is already done. Hauliers report fuel bills running tens of thousands of pounds a week higher than at the start of the year. Farmers say the economics have become so distorted that some are quietly selling stockpiled fertiliser rather than planting crops with it. And in Britain’s off-grid hotels, the cost of a litre of heating oil has very nearly doubled inside a fortnight.
It is, by almost any measure, a textbook cost-of-doing-business crisis, and one falling disproportionately on the small operators who keep rural Britain ticking.
A 76 per cent jump in heating oil, overnight
Shaun Whitehouse, co-owner of Lanes Hotel, a 35-strong boutique spa in Somerset, has worked in hospitality for almost half a century. He has never, he says, seen anything quite like this.
“We’re struggling to keep our heads above water,” he told Business Matters. The price of heating oil at the hotel, which sits off the national gas grid, has rocketed from 81p to 143p a litre in a fortnight — a rise of more than 76 per cent at exactly the moment his payroll has been inflated by the national living wage uplift and his business rates bill has risen again.
“There’s not a lot we can do. We have got to heat the place, and water, so we just have to absorb it,” he said. “Today I am covering three jobs; seven days a week of this and not being able to pay yourself enough money at the end of the month is just grim.”
His frustration with Whitehall is undisguised. “It seems that rural communities are just swept under the carpet by the government … that’s the feeling post-pandemic when this happened then.”
It is a story playing out across the off-grid hospitality sector, where operators have been navigating energy procurement as a strategic boardroom issue for some time, but where the speed and scale of the latest move has left even experienced buyers exposed.
‘Colossal’ costs on the farm
In the Hodder Valley, on the Lancashire–Yorkshire border, Rod Spence farms 1,000 acres and runs a butchery. The arithmetic, he says, has gone from tight to “colossal”.
“We’ve just come out of the lambing season. Even the petrol prices cost us an extra £10 to £15 a day just to check the sheep,” he said. “Contractors’ fees are all going up because of the price of the fuel, and fertiliser has absolutely rocketed. Food prices for the cattle have risen simply because it’s costing more to deliver it. When you live somewhere quite rural, it’s ten miles to the nearest garage, so those extra costs to get fuel for quad bikes all mount up.”
The distortion at the field gate is starkest of all. “I’ve listened to some of these cereal guys and they say, ‘Well, we’re going to sell the fertiliser rather than plant the crop because there’s more guaranteed profit.’”
Like many family operators, Spence is leaning on diversification, the butcher’s shop, a simulated clay pigeon shoot, a fencing arm — to keep retail prices stable and shield customers from the worst of the input shock. How long that can hold 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 almost 30 per cent on top of fixed-price contracts agreed six months ago. “We are facing the living wage increase, we are now at a bottleneck,” he said. “It feels like the chancellor has strangled us.”
£40,000 a week, and rising
The picture in road transport is no less stark. The Road Haulage Association says fuel costs are running roughly 40 per cent higher than before the conflict, with the cost of brimming a 600-litre lorry tank up by £300, and a 300-litre coach tank by £150.
“For operators in our space, this can be the difference between viability and closure,” the trade body said, citing one member now absorbing an extra £40,000 a week in fuel expenditure alone. Coach operators are typically swallowing between £15,000 and £20,000 more.
It is a familiar refrain in an industry where margins have been wafer-thin for years; Business Matters has previously reported on haulage bosses contending with a £20,000-a-year fuel bill simply to keep a single lorry on the road. This time, that figure is being eclipsed inside a week.
Tina McKenzie of the Federation of Small Businesses warned that the impact ripples well beyond firms with their own fleets. “Higher fuel costs affect pretty much every business, even if they don’t have their own vehicles to run,” she said. “Spikes in fuel costs suppress economic activity and raise the risk of a downturn, something we as a country cannot afford.”
The FSB is calling for an emergency temporary cut in fuel duty of 5p per litre, a move the organisation has long argued would deliver fast, broad-based relief to the country’s 5.5 million small businesses.
The wider squeeze: contracts, rates and wages
The fuel shock is landing on a sector already weakened by overlapping 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 a further 10 per cent up for renewal in May and June — locking thousands of SMEs into materially higher rates just as oil prices spiked. By industry estimates, some 180,000 firms have already signed more expensive energy deals since the war began.
Many of those same operators were already absorbing the national living wage uprating and another business rates increase. The compounding effect, as Business Matters reported earlier this year, has already prompted hospitality firms to cut shift hours by close to a third as they trim back to survive.
Kate Nicholls, chair of UK Hospitality, said several of her members were “already seeing prices spike, particularly those that are coming to the end of fixed contracts.” She added: “Rural hospitality and tourism businesses that are off grid will be particularly impacted by hikes to heating oil prices. Ultimately, it will result in price rises at the till, further driving inflation.”
The macro warning
Ms Nicholls’ point goes to the heart of the macro story. The International Monetary Fund has warned that Britain will be the worst-hit advanced economy from the Iran war, and is on track for the joint-highest inflation in the G7 this year alongside the United States. The Bank of England, which held the base rate at 3.75 per cent last month, has signalled that further tightening cannot be ruled out if the inflationary fallout persists; one well-known think tank is now pencilling in headline inflation above 4 per cent.
British households have already started to brace, cutting pension contributions and lifting precautionary savings in anticipation of higher prices to come. The cost of filling a typical 55-litre petrol car has gone up by £14 since the conflict began; a diesel tank now costs £27 more.
For now, the country’s rural SMEs, the hauliers moving the freight, the farmers producing the food and the off-grid hotels housing the visitors, are the shock absorbers. Whether they can keep absorbing is the question that should be exercising ministers this week.
As Whitehouse puts it from his Somerset reception desk: “We just live day to day and keep putting out fires.”
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Hauliers, hotels and farms warn they are ‘in survival mode’ as fuel costs spiral