Small businesses struggle to survive soaring UK energy prices

Having survived the financial hardship triggered by the pandemic, Sadie Shard, owner of the Crescent Hotel in Scarborough, is now faced with another risk to her business: sky-high energy prices.

Shard has owned the hotel in the northern English coastal town since 2014 and until November had been paying £1,000-£2,000 a month to power its 20 guestrooms and restaurant.

But in November her supplier, CNG, went bust shortly before her latest energy deal was up for renewal. The company appointed by the regulator, Ofgem, to take on CNG’s customers said her electricity tariff would increase more than fivefold, reflecting surges in wholesale prices. This would have meant her energy bill jumping to as much as £10,000 a month.

CNG, which had 41,000 business customers, is among 26 suppliers that have gone to the wall in the last five months as surging wholesale gas and power prices have triggered the biggest crisis in Britain’s energy supply sector in 20 years.

For months the government has been subjected to high-profile lobbying by the “energy-intensive industries” such as ceramics and steel, which have warned of potential shutdowns if ministers do not intervene — only to be stonewalled by the Treasury.

Now small businesses such as Shard’s, of which there are about 5.5m in the UK, are also sounding the alarm over spiralling energy costs at a time when many of them are still reeling from the pandemic.

Shard has managed to negotiate her tariff down slightly — although it remains more than four times what it was under her previous deal. She says the overnight increase in her energy costs are the “icing on the cake” after all the difficulties hospitality businesses have been through in the past two years of pandemic restrictions.

“We are in a position now where our [monthly] energy bill is essentially the same as our restaurant takings [every month] which is not feasible unless something changes,” said Shard. “It would be ironic if we survived Covid . . . and it was the energy bills that pushed us under.”

In the Federation of Small Businesses’ latest quarterly survey, 45 per cent of the nearly 1,300 firms that participated said their costs had increased in the past three months because of rising utility bills, driven by the price of energy.

“The picture we’re seeing is that unplanned-for bill increases are hitting firms when they’re already up against other major headwinds — supply chain disruption, inflation heading for 6 per cent, increasing late payment from large business customers, and the biggest tax increase in small business history coming in April,” said Craig Beaumont, the industry body’s chief of external affairs.

He fears this additional pressure will force many small firms to slash costs, let go of staff or “give up altogether”.

There is particular concern about the very smallest businesses with fewer than 10 employees, which don’t have the energy management teams or trading arms of larger corporates. They may not even have an office manager to help them shop around for a better deal.

These “micro businesses”, of which there are an estimated 1.2m in the UK, employing 4.2m people, also have fewer protections over their energy purchasing than households. For example, Britain’s energy price cap does not apply to them.

The cap, introduced in 2019, is adjusted twice a year in October and April, meaning many of the steepest rises in wholesale gas and electricity prices in the past few months will not hit households until the spring, when bills tend to decline as heating demands reduce.

Businesses generally have bespoke contracts with suppliers that can expire at any point in the year. However, a large number of deals come to an end on April 1 and October 1, one big energy supplier told the Financial Times.

“April will be the next big crunch time to see business falling off low contract prices on to high renewal rates,” the supplier said.

Britain’s fourth biggest energy supplier, EDF Energy, said fortunately many businesses were still on multiyear deals but it was “concerned” for those that are due to renew their contracts in coming months.

The government has been looking at ways to mitigate the spiralling energy costs. Kwasi Kwarteng, business secretary, has been holding talks with suppliers and Ofgem over ways to soften the blow of high energy prices for households in April. The consumer price cap is forecast to rise by around £700 to £2,000 a year from that month, unless mitigations can be agreed.

Kwarteng also last year agreed a short-term bailout of Britain’s biggest producer of carbon dioxide following concerns that its closure due to escalating energy costs could lead to chaos in critical industries that rely on the gas, including meat and health.

Small business owners argue that they also need help from ministers. The FSB has added its voice to a growing chorus of energy companies and politicians pushing for a cut in the 5 per cent rate of value added tax on energy bills. But it would also like to see other measures such as a portion of a “redress fund” overseen by Ofgem to be made available for microbusinesses in trouble because of high energy costs, plus an energy price cap for the very smallest firms.

Back in Scarborough, Shard says she is trying to remain positive after an already “tricky” couple of years. “We are just trying to take every day as it comes and plough forward,” she said.


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