Less than one week to go until energy tipping point for 370,000 small businesses

By FSB - National Federation of Self Employed & Small Businesses Limited - 27th March 2023

The end of the Energy Bill Relief Scheme could threaten the future of hundreds of thousands of small firms, according to research by the Federation of Small Businesses (FSB).

With help for energy bills due to be radically downscaled in a week’s time, FSB is warning that 370,000 small businesses who fixed their energy bills last year may need to shrink, restructure or close when their bills revert to a higher price on April 1.

The new scheme kicking in on that day, the Energy Bills Discount Scheme, offers a far lower level of support for small businesses. While market prices have stabilised for those fixing their contracts now, or who are on variable tariffs, those who fixed last year will see huge increases as they are locked into a high price before the Government’s relief.   

As an example, a pub using 48,000 kWh per year in electricity and 192,000 kWh in gas which signed a new contract in August last year would have received a reduction of £60,000 on its estimated £85,000 annual energy bill under the outgoing EBRS. Under the incoming EBDS, that same business would only receive just over £2,000 in support, leaving it a bill to settle of nearly £83,000.

Many small businesses told FSB that their energy bills had soared three, four, five-fold or even more between 2021 and 2022 - driving a coach and horses through their budgets and in many cases making it unviable for them to remain open without the help provided by the EBRS.

One pub owner in the Midlands told FSB last year his monthly energy bill was going to rise from £1,800 a month to £11,000 – an annual increase of over £110,000, and a near-impossible sum for the business to cope with, especially with other costs rising, and consumer confidence hitting new lows.

FSB finds that around 24% of small businesses are locked into energy contracts that were signed last year, at a time when wholesale prices were soaring, and over a quarter of this group (28%) could have to downsize, rethink their business model, or even close when they are hit by the rise in energy costs.

In the short term, FSB is calling on energy companies to be sympathetic to the plight of small firms in this position, and to allow them to renegotiate or ‘blend and extend’ their energy contracts, to benefit from the significantly lower wholesale energy prices which are now available.

In the longer term, we want small firms’ progress towards net zero to be supported by the Government through the introduction of a ‘Help to Green’ scheme, providing small businesses with a £5,000 voucher to invest in energy-saving or even energy-generating measures, such as better insulation, solar panels, or a heat pump when cash balances are at rock bottom.

This would reduce small firms’ carbon footprints and their energy bills at the same time, giving a huge boost to the UK’s net zero journey.

The Help to Green concept has been supported by a dozen other representative bodies, including British Chamber of Commerce, Institute of Directors and Make UK.

Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB), said: “The jump in energy bills on April Fool’s Day won’t be a laughing matter but will be a shock to hundreds of thousands of small businesses, who signed up to fixed contracts when the government discount was guaranteed under EBRS.

“In a week’s time with the rollback of government support, this group of vulnerable small firms will see their bills revert to high rates. This cliff-edge will also hit consumers as businesses will have to raise prices to cope with soaring bills, driving up inflation.

“Some 370,000 small firms could also be forced to consider downsizing, restructuring or closing as it is impossible to pass on the full costs to customers, who cannot suddenly afford to pay £25 for a pizza or see the price of a pint double.

“There’s much that could and should be done rather than leaving small firms high and dry. Allowing the most vulnerable small businesses to renegotiate or ‘blend and extend’ their energy contracts to better reflect lower wholesale energy prices is the least the Government and energy suppliers could do.

“A dozen trade associations representing businesses of all sizes and sectors, have come out to endorse the FSB initiative of ‘Help to Green’. This scheme would be on par with government support for homes and public buildings to retrofit.

“Our message to the Government is: show the small business community that they’re being treated as equal partner in this energy price crisis. That would keep 370,000 small firms off the cliff as well as the jobs and communities which depend upon them.”

Our message to the Government is: show the small business community that they’re being treated as equal partner in this energy price crisis.

- Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB)
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