In the current climate it’s not unusual or a sign of failure to be faced with the prospect of cutting back. With the prices of all the everyday essentials like fuel, food and housing going up, seemingly with a mind of their own, there has never been greater pressure on the household budget. But does the pressure really begin and end at your front door with every business out there bringing in record profits? We’re going to dive deeper to get to the bottom of what is, quite rightly, a rather contentious issue right now.
Businesses in Wales are finding it harder to make money and give their staff pay rises than in years gone by. While some will point to massive multinational energy suppliers reporting record profits, it’s worth noting that these are the exception, not the rule. If you want to be able to fully get to grips with the situation you might think you need to have a degree in economics, but good old common sense will always take you a long way.
Let’s take a local garage doing repairs for a small town and a group of surrounding villages. The cost of car parts has nearly doubled as the knock-on impact from the COVID shutdowns is still being felt. People still need to drive to and from work, they still need to be able to go shopping, and their cars still need to be able to pass their annual MOT. Yes, the garage can put up their prices, but not so much that they lose a significant amount of their business. What they’re really trying to do is make sure they can a) still trade and get access to the replacement parts they need, and b) provide a price that’s competitive enough to secure them work. And then one day two of the mechanics come in and start pushing for a 20% pay rise…
Now, we’re not pointing the finger at anyone who pushes for a pay rise in these times, particularly given the high rate of inflation that continues to eat into real-term earnings. What’s clear though is that if the garage were to grant these lofty pay rises, they would either have to make less money or pass the costs onto their customers. Given the fact that car parts are already costing far more than before 2020, this isn’t a simple equation to balance and get right.
Let’s say the mechanics are asked to wait until next year for their, no doubt, well-overdue pay rise. They can tough things out and get through it, but to do so they need to tighten the household budget. When working families have more demands on their money, they’re less willing to spend it on leisure activities, going out and booking vacations. More people are turning to Freeview TV than paid streaming plans and trips to the cinema. The number of people playing free online slots in 2023 is growing while the number of visitors to physical casinos and amusement arcades falls. And the number of locally run stores struggling to compete with nationwide discount retailers is growing by the day.
Because of the initial increases in the everyday essentials that businesses and households need to run, there is less money getting put back into the economy. People are sensibly cutting back and saving as much as they can in case things go from bad to worse, but this isn’t great for other small businesses that form the backbone of the Welsh economy.
It would be very easy to write a piece that urges everyone to go out there and spend right down to the last penny in the hope that it would create new jobs and kickstart the economy. The only problem with writing a piece like that is would clearly come from the pen of someone who is in denial about the very essence of human nature. When you’re worried about paying for fuel and food and have the pressure of needing to keep a roof over your head, the last thing you’re going to want to do is spend all of your disposable income eating out.
Yes, if everyone did this then it would quite likely kickstart the economy, increase liquidity and get goods and services changing hands much more quickly, but it’s far more complex than that. As intelligent creatures we’ve learned to first protect our own before having fun and relaxing, and that means making sure we have enough to care for and provide for our nuclear families. Some may call it selfish, some may call it realistic, some may call it merely practical. The key point here is not to pass judgement on whether or not any of this is right or wrong, but to instead accept it as a manifestation of human nature.
So, what can we take away from this? It’s important to remember that the vast majority of people you meet in everyday life are in the same boat. You might have a salary and envy someone who owns a business, deciding on their behalf that they can just ratchet up their prices and double their profits. But remember they’re probably looking at you and wishing they had the security of a fixed income while they’re losing sleep worrying about the position of their business.
What, to the outside world, can look like a blissfully rosy situation is often anything but, especially when the economy is performing the way it is right now. The best thing to do is put negative feelings like envy, jealousy, even resentment, to one side and instead focus on what you need to do. History shows us that the economy is cyclical and that there are many things which impact the amount of money we have in our pocket each month.
By staying positive and remembering that we are all in this together, we can emerge stronger in no time.
