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Small firms at crisis point over energy prices

30 August 2022

Some small businesses have already had to shut up shop because of soaring energy bills and others are finding that energy companies are refusing to supply them because of fears they could go bust.

UK small firms that rely heavily on gas and electricity, including many food and hospitality businesses, are facing unprecedented pressure because of the rising cost of energy.

Pubs are seeing enormous hikes to their energy bills and leaders of six of the country's largest breweries have called for "immediate government intervention" on energy bills this winter, according to the BBC. The Federation of Small Businesses and the British Chambers of Commerce are also warning that time is running out for many small businesses and they are calling for urgent action from the government.

According to a report by the Guardian newspaper, some big energy firms are refusing to supply some small businesses out of concern they could go bust; many are also demanding a hefty deposit upfront. It means that many business owners are struggling to find a supplier in the run-up to the October period for renewing gas and electricity contracts. Suppliers named as having refused service or asked for a down-payment include SSE, Scottish Power, E.On Next, Drax and Ecotricity.

Connor Campbell, business finance expert at NerdWallet, said: "Understandably, business owners are extremely worried about the future … Where larger firms are able to fix their prices several years ahead, SMEs usually can only see just the one year in advance. Most of them will renew their contract at the beginning of October, when prices are expected to monumentally rise for both consumers and businesses."

Analysis of business energy costs by the Federation of Small Businesses (FSB) has found that between February 2021 and August 2022, bills have already increased by 349% for electricity and by 424% for gas. For businesses with a 30,000kWh annual consumption, electricity costs in this period have gone up from £4,700 to £21,200 and gas costs have increased from £1,350 to £7,050.

Some firms have already decided to cease trading and there can be few hospitality businesses that are not considering their options in the face of these astronomical price rises.

FSB national chair Martin McTague said: "We don't have the luxury to wait until the winter … Plans for urgent intervention must be finalised and ready to go on day one, for whoever wins the leadership contest on September 5th."

The FSB has written to the government to suggest ways to help small firms including:

  • Direct help for small businesses with bills via the rates system;
  • A discretionary pot of money to be issued by local authorities;
  • Temporary reduction of VAT on energy - reducing the higher-threshold rate of VAT from 20% to 5% and the lower-threshold and domestic rate of VAT from 5% to 0%;
  • £5,000 Help to Green vouchers to support businesses to decarbonise;
  • Extend the price cap to the smallest businesses.

McTague added: "More widely, cost pressures could be eased through a reversal in the recent national insurance hike. Increasing the threshold of small business rates relief to £25,000 would take 200,000 businesses out the rates system and help reduce overhead costs."

The British Chambers of Commerce (BCC) has also written to the government suggesting a five-point plan to offer small businesses immediate support. Its proposed measures are:

  • A COVID-style emergency energy grant for small businesses;
  • Temporary cut in VAT to 5% to reduce energy costs for businesses;
  • Ofgem to be given more powers to regulate the energy market for businesses;
  • Temporarily reverse the rise in National Insurance Contributions;
  • Government to reform the Shortage Occupation List (SOL) to bring down wage pressures and fill staff vacancies.

The BCC says the government is "running out of time" to offer businesses and households the support they need. BCC director general Shevaun Haviland said: "I have written to the prime minister, chancellor of the exchequer and both Conservative Party leadership candidates expressing my concern for businesses and households during these challenging times … In June, we gave the government until the Autumn budget to get its house in order, but the latest economic projections released since then have been worse than expected.

"We simply cannot afford to see another month of the same old news … The problems are well understood. We at the BCC are offering solutions. It is now over to the government to take action to protect businesses, livelihoods and jobs."

Written by Rachel Miller.