More than just 9 to 5

24:17Because if you've got, maybe you're paying for laptops, servers, other equipment, has that become more expensive for you? Yeah, gradually. We're not a business that uses tons of tokens and chips, but of course, we're impacted by the entire supply chain. And so for us as a business, I think the more meaningful impact that we've seen in recent months is the fuel surcharges applied to moving goods in to us, ingredients into us and out to consumers. And so that's a very real cost for us as a business right now. Well, speaking of costs, Canada has announced a dollar-for-dollar retaliatory tariffs on the US, which over the weekend imposed new levies of between 25 to 50 percent on their northern neighbour.

24:59Here's Canada's Prime Minister, François-Philippe Champagne. This is a non-precedented challenge imposed on Canada. But Canada will meet the moment. Canadians will meet the moment. We will meet the moment together. And as the Prime Minister has said, we will support our workers, our businesses and our industry with whatever it takes for as long as it takes. Canada has imposed tariffs on thousands of US goods and we had one lucky member of the team read through what's been affected. Aluminium products such as table, kitchen or other household articles and parts thereof, pot scourers and scouring or polishing pads, gloves and the like, cups for use in the manufacturing and blood plasma or serum of human origin or fractions thereof or extenders or substitution bands for migratory birds, pigeon countermarked leg bands to be employed in the manufacture of...

25:59It's a very long list. I hope Stefan's OK there. It was going on and on. Micah, I mean, this is just a flavour of a very long list, isn't it? But what has Canada actually chosen to target? Well, Canada and America are on a pretty brink of something very disastrous. You know, Canada is looking at everything from existing levies on steel, aluminium, timber, the whole lot. And it comes at quite a risky moment for the US economy because we know the US is battling inflation and that is leading to increased voter unhappiness over the state of the economy. And this is just weeks before those crucial midterm elections coming up in November.

26:45What will happen, as we've just discussed, companies will pass those tariffs in the form of higher prices to consumers, and it will only further fuel that fire of inflation at a time when the US bond market is facing huge challenges. But it is also a grave threat to Canada's economy. Because remember, the American economy is about 13 times larger than Canada, and it is better equipped to cope with these tariffs. So, So both countries will be losing ultimately. And the hope is that in the next two weeks they can find a way to resolve it. Yeah, because Canada sends more than 70 % of its goods exports to the US.

27:27So it does have more to lose, doesn't it? That's right. Absolutely. And Canada's goods aren't sold on spot markets like Brazil sells its commodities to the US. Canada's goods are deeply integrated into American supply chains. So it'll find it really hard to find alternative buyers quickly for those goods. And we're talking about American economy, which is about$32 trillion versus the Canadian economy, which is$2.5 trillion. So America is in a stronger position. And I do think that while Canada's finance minister and prime minister are being very verbal about, you know, holding firm, they will need to go back to the table and see if they can come up with a deal.

28:15Now, Matt, you're not selling directly between the US and Canada, but at the same time, can those costs still feed through into your ingredients, packaging, transport when you've got global rows, maybe not between these guys, but just in general, everything always feeds into each other, doesn't it? Yeah, it does. And let's see if the next couple of weeks, they can come to a deal. What we saw with tariffs on Liberation Day, or whatever it was called, was confusion. So that long list that you've read out, you know, there was a number of carve outs within our sector. So it's really hard to stay on top of actually what's impacting.

28:55And as a result of that, there tended to be shortages as people were reluctant to export, not knowing what the impact was. And so, yeah, it's totally connected. We really need to see how things settle down, whether there can be a deal and also what happens to the goods impacted by these tariffs. And if it ever does settle down. We do not know. It's been a mad couple of years.

29:31And of course, Whole Foods Market eggs, which are all cage-free or better. In the evening, bring home a build-your-own family meal that feeds four for just$35. Choose one entree and two sides. Shop smarter, not harder, at Whole Foods Market. Wake Up to Money from BBC Radio 5 Live. Welcome back to Wake Up to Money. It is 5.35. We're going to be talking about energy bills. extremely important. Energy regulator Ofgem is going to be announcing its price cap later this morning. That will determine how much our gas and energy bills will be rising from October. So we do want to hear from you. What are you going to be doing to soften the expected price rises?

30:11Get in touch with us. Text 85058 or WhatsApp 08085 909693. And of course, if you're listening to us on BBC Sounds or on the podcast later, use the hashtag WakeUpToMoney on social media. Now, we do have two fantastic guests who are still with us. Matt Hiscock, Chief Executive of the health supplements company Wild Nutrition and Micah Curry, Vice President of Personal Finance from PensionBee. Matt, energy bills, how is that feeding into your business? Yeah, I mean, we are not a heavy user of energy. We have an office, we have a warehouse, a production facility, but not energy intensive manufacturing.

30:50We've obviously seen impacts in energy costs, especially in the standing charges and the new sort of network infrastructure costs. We're constantly looking to improve what we do. We're a B Corp. And so, you know, it comes as second nature as we try and save energy. We've been able to upgrade some of the machines that we use in our production facility, which have saved quite a lot of energy. But of course, it's a headwind and energy is a real competitive issue, competitiveness issue for the UK business sector because we're paid so much more for electricity than Europe. Right, well, we got a text in here.

31:27Energy bills always go two step forward and one step back. That was from Eddie in Hitchin, which might be the case where we're going to talk about it now because later this morning, we will find out how much household energy bills will change from October when Ofgem announces its latest price cap. But that cap doesn't apply to businesses. And for some of them, electricity costs are becoming an increasingly big problem. New research from Boston Consulting Group says Britain has some of the highest electricity costs among comparable European countries. And increasingly, it's not just the price of the energy itself pushing bills up.

32:01The cost of building and maintaining the grid, along with other charges added to bills, is becoming a much bigger part of what we pay. Well, I'm joined now by Raoul Roparel, formerly a special advisor to Theresa May when she was Prime Minister and now Director at the Boston Consulting Group's Centre for Growth. Raoul, good morning. Good morning. Can you just explain to me, when we talk about an electricity bill, what am I actually paying for? So I think in the electricity bill, there are various different parts that go into it. As you touched on there, there's the wholesale cost of generating the electricity.

32:35But we also have various other charges in there as well. So the cost of building network, of building the grid is currently on bills. We also have the cost of certain taxes. Obviously, the government has announced that VAT will be reduced temporarily later this year. And we also have other levies such as warm home discounts and other social costs on there. And then there's an element of retail pricing and other things that go into it. So there's various different parts in it. It's far from just the cost of generating that electricity that goes into the bill. Yeah. So to be very clear, your research suggests the wholesale cost of energy is no longer the biggest reason bills are rising.

33:15Yeah, so when we look back over the past decade, what we see is that wholesale prices explain just over a third of the rise in bills over the past decades, but actually the network and policy costs, so the cost of building out the network that's on bills and the policy choices we've made and the levies we put on bills explain more than 45 % of that rise. And when we look forward over the next decade, that's going to shift significantly. So actually the network costs, because we're embarking on a necessary but significant build out of the grid, both transmission and distribution, will shift bills up about 86 % of a rise of around£115 over the next decade in our kind of central forecast.

33:55So, yes, what we're seeing is that actually it's not necessarily the underlying cost of how it costs to run our system, how much it costs to generate the electricity, but some of the choices we've had to make around how we pay for a rollout of a grid of new generation and then some of the taxes and policy choices we make that have structurally driven the bill higher over the past decade and will continue to do so over the next decade. OK, I've also got James Somerville, Managing Director and owner of Bowers & Jones, based in Bilston in the West Midlands. You provide services to the metal forming industry drain.

34:28Jane, so I'm assuming that that's a very high energy intensive industry. Hello? Hello? Yeah, I can hear you. Go ahead. So, yeah, being a manufacturer, electricity is one of our major costs. Now, being an SME, our energy bill is around about£50 ,000,£60 ,000 a year, but we are paying more now, still double than what we were paying in 2021. And just having a look at the breakdown of what that bill is made up of in 2021, so this is sort of coming out of COVID in pre-Ukraine war, our standing charge was 12p per day and that has now increased to£23 a day. So our standing charge element of our bill has gone from£43 a year to nearly£10 ,000 a year.

35:23And it's a huge percentage over the overall bill. So while we've been trying our very best to reduce consumption, so our consumption has actually gone down 25 % in that same period and that's because we've been investing in new equipment which is more energy efficient. We've been upgrading the factory to use motion sensors and LED lighting and switching things off and everything like that so our usage has gone down but our overall bill so our usage has gone down 25 % and our overall bill has gone up 30 % in that same time period And most of that increase is due to the increase in the standing charge.

36:08Now, I'm going to bring you in on that, Raoul, because, you know, from what Jane says, her usage has gone down, but the bill's gone up. Like, explain that vicious cycle here, because people use less electricity because it's expensive, but that can actually push the cost per unit higher. How does that work? Yeah, this is something we see across the system. as you say because we've got significant fixed costs now standing charges is one of the results of that so we're putting a lot of fixed costs in the system you know we're building out this generation we're building out the grid which is necessary but is a set cost and that is then placed onto bills but obviously it's creating a negative price spiral so prices are going up people are using less and then those fixed costs are spread over a lower amount of usage a lower number of users.

36:59So the unit costs, as you say, all the costs on the bills that remain go up. And so we're in this sort of negative price demand spiral where prices are going up, people are using less logically, as said out there, and that is reducing demand. But I think when we look over the next decade, that becomes a systemic concern, because when you put more and more fixed costs onto a system, but demand decreases, the relative cost for everyone goes up. So what we actually would like to see, and I think we need to see as a country, is more demand, more usage coming into the system to offset that. Obviously, we want this to be productive usage, not just using for the sake of it.

37:35But yeah, I think that negative price demand spiral that we're seeing play out is becoming a structural challenge for the system. What about heat pumps, EVs? The government might say, well, the demand's there for them. well look we are seeing uptake and i think certainly on evs the uptick has been quite significant in the last few years but i think we already bake this into our current forecast so if you take for example the the demand path and the generation path set out over the next decade by the department for any security and net zero that already roughly takes into account you know evs rising from around 3.25 million on the road today up to around 17 to 18 million in 2035.

38:17So a massive uptick in EVs already expected. Similarly, heat pumps, you know, I think we have around 250 ,000 stay, that's already forecast or expected to rise to five and a half million by 2035. And so the system is being built and hoping that this demand will will come in and will be realised and expecting it to be realised. But actually, what we've seen over the past decade is that hasn't really happened and demand has fallen by around 11%. And that's been going on for a long time. So I think our concern is that if prices remain high and demand continues to underperform, you will have these fixed costs in the system, this build out happening, but demand not materialising.

39:01And that would push bills even higher over the next 10 years. Jane, in your case, can you pass those costs on to your customers or does that risk losing business to competitors overseas? It risks us losing business to competitors overseas because I don't think we have the same energy cost in the UK as we do with our competitors overseas. So their energy costs are nowhere near as high as ours. The other issue we've got is a lot of my raw material or all of my raw materials steal, which is a very energy intensive product. So as the energy costs increase to make my raw material, my raw material, that becomes more expensive and then I have to push my prices up even higher to compensate for that as well.

39:49So it will make me and does make me less competitive compared to my overseas competitors. So yes, business will be lost. And then if we lose business, we're not producing as much. Therefore, the demand is low. Now, Jane, the government says new schemes could cut electricity costs by as much as 25 % for thousands of manufacturers. Would your business actually benefit from that? It would benefit from that, yes, of course, because we wouldn't have to pass as high a cost on to our customers and then we would become competitive, yeah. But as I said, it's the standing charge element that is the major issue for us.

40:27Got a lot of texts in on this. Electricity bills always kind of blows up the text machine. And a couple of texts in here saying, remind me what Labour promised in the sum up to the election. Oh yes, to reduce energy bills by£300. Seems that didn't quite work out as most of us knew would be the case. How is Labour not held to account by the media for the repeated promises to reduce bills that never come to pass? They still keep repeating those promises in current interviews, but bills keep increasing. Raoul, is it even possible for them to bring it down? Well, I think it is very difficult. There are no easy choices here.

41:05This is a very complex system and we do need to build out the grid. We do need to build generation and move in a different direction. But I think one of the challenges is what Labour and the government have been talking about there in terms of bringing bills down is the destination we're heading towards. And that's going to take 20 years plus to get there. And so while that is the right aspiration, I think what we need to also focus on is the path and how sustainable the path is to get there and what prices look like in the interim. And I think what we're highlighting in our report and one of the challenges that Jane was highlighting is obviously right now we're having a very acute challenge.

41:43We are relatively more expensive than than peer countries. And so there needs to be some some things done in the short term. And and what we highlight and what we touched on already is that, you know, finding some way to defer some of the costs, the fixed charges off bills in the short term and recover them maybe in the future when bills are relatively lower and costs in the system are relatively lower. and then also just trying to get more demand into the system, whether that's more industrial usage and or more data centres that can help spread the fixed costs in the future across more bills.

42:19So there are things, and we think there are things that can be done. They're not easy, but I think it's important to think about what can be done in the short term rather than just focusing on what does the system look like in 20 years because we do have quite an acute challenge right now. You just mentioned data centres and spreading the cost. But how does that work usually when I hear about data centres? It's like they're big energy guzzlers, like they're part of the problem. Yeah, so it's slightly counterintuitive. And I think it's an interesting quirk of the UK system, because we are building out this system with significant fixed costs, and significant renewable generation.

42:55There is the opportunity to bring data centres or similar industrial usage onto the system in a way that can bring bills down for everyone by by taking a bigger share of these fixed costs. Now it needs to be done in the right way. And that means, you know, them connecting in a way that is is a bit more flexible, so potentially curtailing their usage at peak times. It means making sure we don't have to build new transmission or new grid to bring them online or that the data centers bear the costs. And it's also about making sure that, you know, we make the use of the land that already has connections or is powered already across the UK.

43:36And I think if you do that, you can bring them on in a more flexible and quicker way. And I think one of the challenges at the moment is to get a data center connected can take five, seven years, which obviously means they will likely go elsewhere. So I think that, you know, because the way we've set up the system, it is slightly strange, but you can bring data centers online if done in the right way and get them to pay their share and additional shares of these fixed costs, which can then help the system as a whole. Jane before I let you go what is the biggest problem for you is it the absolute cost or the fact that you simply you don't know where prices are going to go next?

44:14Well we learned quite a bit from the Ukraine war actually so we held off fixing our energy cost back in 2022 when the Ukraine war happened and we suffered from that because we ended up having to go on a variable contract and the price escalated. We were paying over£100 ,000 for our energy per year. So when the outbreak of the Iran war happened, we thought let's learn the lesson from the Ukraine war and try and fix as early as can for as long as we can. So that's what we did back in April. However, we fixed at a price that was 10 % higher overall than we were at that time. So we have now got a fixed bill until the end of 2028.

45:02So at least we know what we're paying, but it is more than we were paying before the Iran war. Well, you'll take anything that's going. Exactly. I mean, 10 % to me is absorbable in that period of time, rather than having to know where, you know, again, we wouldn't want it to go back on a variable contract because that would just be a nightmare. No, of course. All right. Jane Somerville, thank you so much for joining us, Managing Director and owner of Bowers & Jones, based in Bilston in the West Midlands, and also Raoul Parral, now Director at the Boston Consulting Centre for Growth. Thank you both so much for joining us.

45:38Matt, I mean, do you feel UK businesses are operating at a competitive disadvantage because of energy costs, is something Jane was saying? Absolutely. I think there's only a couple of countries in Europe that are paying more for electricity than the UK are. So I think that's a big consideration. But let's not forget all of the other layered costs that have been added to businesses in recent years with national insurance. And we're a real living wage employer. We believe in that. And that has seen tremendous increases as well. So there's a layer cake of costs that businesses need to wrestle with daily.

46:18Not a tasty one. All right. Let's talk about AI books. I teased this earlier on and it's a curious case. So let's get into it. Now, imagine you're a second hand bookseller who sells about 100 books in an entire year and suddenly one customer order, it's 30 at once. Not 30 books by the same author either. We're talking seemingly random mixture from Thai politics to military history. And then another big order arrives the following week. That's what started happening to booksellers around the UK earlier this year. And the suspicion is that some of these books aren't being bought to be read at all, but to be digitised and used as training material for artificial intelligence.

46:59And that's raised another question. What happens to the physical books once they've been scanned? David Gower-Splintz, who owns Book Lovers of Bath, specialising in 20th century secondhand books, is with us now. Good morning. Morning. How are you? Take us back to that first order. 30 bucks in one go when you might normally sell about 100 in a whole year. So what did you think was going on? Well, it was all slightly baffling. I do sell more than 100 in a year, mind. I sell about 100 a week. There's a space of orders, I think around March it started and then it sort of peaks the following month.

47:35But people ordering 20 books doesn't happen really, well, certainly to me. And if it did order 20 books, it would be 20 books in the same subject. It was just baffling. Yeah, it wasn't just the number. It was the books they were choosing, wasn't it? It was Thai politics, military history, colour. Was there anything else? Yeah, I mean, all sorts. I mean, biographies, books about trains, books about sailing, you name it. There was no rhyme nor reason to it. Nothing connected. You noticed something else as well. They were ordering very specific ISBN numbers. Yes, all of the books had ISBNs. Now, there's a mixture of what I sell.

48:16There's probably 60 % ISBN, 40 % not. But not one book I sold to them was non-ISBN. So when you started comparing notes with other secondhand booksellers, what did you find out? The scale of it. I've listed on a marketplace, obviously. And there are very few people that actually post on the marketplace, in forums, that is. And they were all saying the same thing. So I'm one quite small book dealer in England, but it's all over the world, the States, Australia, etc. If you scale it up, the numbers of books being bought was quite frankly baffling. And you looked into how books can be digitised on this sort of scale.

48:59So what did you learn? Well, I mean, it goes back years to, I think, Google Books many, many years ago now. But there are now machines that you put a book in it, it strips the spine off the book, rips the covers off, separates the leaves and feeds it through a scanner, effectively, and just digitises it. And the paper goes out the other end into a bin and it's taken away for pulp. That's a well-known sort of mechanical process. I don't know a company that does it off the top of my head, but it's not a great end to a good book's life, if that makes sense. And does this trouble you? How do you feel about this?

49:38Yes, I thought that was going to come up. Yes, difficult. The money is very nice, don't get me wrong, to sell an awful lot of books that possibly you might not have sold, wouldn't be expecting to sell. It's quite nice. I don't have many unique or very, very scarce books, but there's a conundrum here in that if a book is one of maybe three, four copies in the world do you really want it um destroyed digitized especially when it's not actually you can't then go back to it you nobody will be able to read it again it's not how the these the if it is ai and i don't know ai doesn't work like that it just digests it and then it's gone um so for me a book about sailing i can live for that not being you know a physical object um But a rare thesis on the vision of Madagascan monkeys, for instance, that has some real value to somebody.

50:37I'm a little bit, yes, I'd be a bit distraught about that. That is an interesting point, actually. I'm going to bring in Micah here. Micah, do you think that's just another example of AI suddenly putting value on things we previously just didn't think of as valuable data or valuable at all, really? Definitely. I mean, what is happening is what AI doesn't want is the digital slop that the internet is full of now because of AI, and it needs that verified human writing. So that's what it's doing. But there is something quite dystopian about the image of books being shredded up. So I agree with the sentiment that some of the intellectual property is being captured, But having rare books destroyed indiscriminately is very, very concerning.

51:25Matt, as a business owner, if you suddenly saw a huge spike in demand from a completely unexpected source, would your first reaction be great more sales or would you want to know why? I'd want to know why. I'd want to look into it as much as I could. And being a digital business or mainly digital business, you have some tools to look into that. Well, that's exactly what you did, David. So you did all the research. In fairness to you. No, I did do some research, but I can't claim I found out everything. It's unknowable as far as I can work out. Nobody will take, nobody has answered the question, what is happening?

52:04And I think that's the question. That's what makes it quite, not frustrating, but it makes it curious. So if another big order came in for you tomorrow and included something you were, you know that was particularly scarce maybe would you would you sell it or would you kind of you know wonder maybe this won't ever come back yeah no i've sort of i have sort of changed my position slightly on well dramatically i suppose i think the answer would be no um i i would most as i say most of my most of the books that i sell are relatively common um just nice condition etc etc. I wouldn't sell something that I particularly treasured.

52:49It wouldn't sit right with me now. Fair enough. All right. David Gower Spence, owner of Booklovers of Bath, specialising in 20th century secondhand books and who also went on a bit of a, you know, a bit of a look into what was going on in this shop. Thank you so much for speaking to us this morning. Micah, what do you think? Is this kind of a little fear for you, a bit dystopian? It is definitely dystopian. I think what it does tell us is the value of human data. So they're looking for books that were printed before this AI era and this era of AI slop and AI pollution. So it does show you that AI is prizing human writing.

53:34Exactly. Yes. And so should we. We'll leave it there. Vice President of First of the finance for Pension B. And Matt Hiscock, Chief Executive of Health Supplement Company Wild Nutrition. And that's it from Wake Up To Money. Wake Up To Money from BBC Five Live.

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