Rising costs are causing serious and widespread problems for rural businesses in parts of England which is curtailing their ability to invest and grow, according to a major new survey from the National Innovation Centre for Rural Enterprise (NICRE).

Two-thirds of rural firms in the North East, South West and West Midlands - increasing to 69% of businesses in more remote areas, and 82% in the hospitality sector - report that rising costs have significantly impacted cash flow over the last year, with four out of 10 of them reducing, cancelling or postponing investment.

But, as in the Covid-19 pandemic, the survey showed that rural firms have been particularly resilient with 41% increasing their turnover, compared to 35% of urban businesses, and 18% decreasing their turnover, compared to a quarter of urban businesses.

The findings from NICRE's The cost-of-doing-business crisis: rural impacts and adaptation is the first State of Rural Enterprise Report published from its second large-scale business survey carried out over the summer. It follows interim results being presented at the Rural Services Network's National Rural Conference 2023 in September.

NICRE director Professor Jeremy Phillipson, Professor of Rural Development at the Centre for Rural Economy at Newcastle University, said:

"It is crucial for businesses in rural - as well as urban - areas to be able to invest in order to grow and it is a considerable challenge for future innovation and expansion that rising costs are curtailing those efforts.

"While further evidence of rural enterprises demonstrating resilience in the face of adversity, this way of rural enterprises coping with the cost-of-doing-business crisis in the short-term may exacerbate long-term structural problems in the UK economy. Urgent attention should be given to how the adverse effect of the crisis on business investment can be best counteracted to support future business aspirations and plans."

Rural firms responding to NICRE's survey, like their urban counterparts, highlight rises in the costs of goods and raw materials, and increased costs of energy or power as having the greatest impact. Yet the cost of fuel for transport was identified as a much more prominent challenge by businesses in rural areas.

The data shows that firms have responded swiftly to these cost pressures, with many increasing the prices of their goods and services. Rural businesses, in particular, have been more likely to look to improve the efficiency of their production or processes, to have altered their range of products and services, and to have drawn on household labour and other resources to cope.

Of those businesses that claimed rising energy and power costs were having an important bearing on cash flow, almost four out of 10, compared to 29% of urban firms, adopted energy-saving measures or equipment, with those in more remote locations more likely to switch to alternative sources or suppliers.

Prof Phillipson added:

"While the challenges of increased costs have been widespread for rural enterprises, the effects have been compounded for dispersed and remote businesses which face greater average travel distances to access supplies and support, and to distribute products and services, as well as fewer garages and higher fuel prices.

"This crisis could, therefore, worsen the long-standing challenges facing more remote rural economies and impact further on growth potential.

"On a positive note, the crisis is stimulating rural firms to reduce energy consumption and to think about their energy efficiency and, therefore, provides an important opportunity for engaging with and supporting businesses to decarbonise and transition to net zero."

Breamish Valley Cottages in Northumberland is one rural business where rising costs are impacting its ability to invest.

Director Peter Moralee said:

"Rising costs are affecting every facet of the business. Our electricity costs have risen by 100% - gone up by £50,000 - which is a significant amount of money to take off the bottom line. Alongside that, everything has gone up be that oil, staffing and input costs. Working in the services industry, yes, we can put our prices up, but we can only go so far and a lot of those costs we have had to absorb.

"Having holiday cottages, we're always trying to keep ahead of the game, in terms of making everything as luxury or as up to standard as we can and that involves a lot of investment. We always need to keep moving forward but that growth is being slowed quite significantly because of rising costs and one of the biggest ones is interest rates."

The report has been welcomed by the Department for Environment, Food and Rural Affairs and the Country Land and Business Association (CLA).

Rural Affairs Minister Lord Benyon said:

“We recognise the pressures that rising costs are creating for rural business which are a crucial part of our economy and communities.

“As a government, we are committed to unleashing opportunity and helping rural entrepreneurs succeed. That is why we are investing £110 million through the Rural England Prosperity Fund to support local businesses and create employment opportunities for rural areas, as well as funding community infrastructure projects.”

CLA President Victoria Vyvyan said:

“Farmers, landowners and rural businesses are dynamic and forward-thinking, but face many challenges and barriers that impact them to a greater extent than their urban counterparts, as highlighted in this report. These include energy costs, connectivity issues, transport and fuel, housing, and skills provision and labour availability.

“Rural communities are being hit hard by the cost-of-living crisis, and persistently low economic productivity is hampering our businesses and workers.

“The CLA’s Rural Powerhouse campaign highlights how the rural economy is 19% less productive than the national average. By closing this productivity gap, we could add £43bn to the national GDP. Supporting the next generation of rural businesses to succeed and thrive is crucial.”