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British businesses are facing an energy-cost cliff edge in April when the introduction of a weaker government support package leads to a jump in bills, trade bodies and analysts warn.
Companies have been protected from elevated energy costs this winter by a government support scheme that started in October and runs until the end of March, but its replacement, which will last until April 2024, is much less generous.
Although wholesale gas prices fell this week and are down by about half since late October they are still roughly three times their level before the start of the pandemic, leaving energy costs heightened and many companies exposed.
Energy consultancy Cornwall Insight warned of a “precarious cliff edge when the business support scheme comes to an end”, with some businesses facing a 70-80 per cent increase in their power and gas bills.
“Companies were going to have to get used to a high energy price environment, but for some this could have a catastrophic, house of cards effect,” said Robert Buckley, Cornwall’s head of relationship development. “The more you pay on your energy bills the less you have to invest in your current business.”
Arjan Geveke, director of the Energy Intensive Users Group that includes steel, chemical and ceramics manufacturers, warned that the steep drop in government support compared with some other European countries could put some of its manufacturers at an increasing “competitive disadvantage”.
UK industrial electricity prices were higher than those of other countries even before they escalated in 2022 because of higher network charges and the heavy role of gas-fired power stations in the country’s electricity generation mix, he said.
Germany, France and Italy have all extended and increased support for energy-intensive users recently as a result of the war in Ukraine, while energy prices in the US remain far below those in Europe, Geveke added.
“Although welcome, the level of relief the UK government proposes to provide from April still puts UK energy intensive users at a competitive disadvantage internationally,” the EIUG said.
The extent of the price rises depends on individual contracts signed but the decrease in government support will most affect businesses that locked in rates at the peak of the market in August last year.
“There will be a small number of customers who have scrimped and saved over the summer to buy at a certain price and now aren’t benefiting from lower wholesale prices,” Buckley said.
Emma McClarkin, chief executive of the British Beer and Pub Association, said energy costs were the “biggest threat” to the industry.
“The drop-off in support come April is deeply worrying, with business owners uncertain about what the next 12 months will bring,” she said. “We need the government to hold suppliers’ feet to the fire on passing on drops in wholesale energy prices.”
Tina McKenzie, policy chair of the Federation of Small Businesses, called for help for “vulnerable” companies, saying energy retailers should allow them to renegotiate their contracts to benefit from the recent fall in wholesale prices.
The FSB also wants the government to introduce a Help to Green voucher worth about £5,000 to help companies cut energy costs and boost renewables at the same time.
Cornwall Insight, which works closely with suppliers to business, said most companies had continued to pay their bills but there were “concerns that once the scheme goes there will be a lot of bad debt”.
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