The end of the Energy Bill Relief Scheme eight days from today 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 from April 1, the trade group today warns that 370,000 small businesses who fixed their energy deals last year may need to shrink, restructure or close when their bills revert to a higher price next week.
The Energy Bills Discount Scheme, the government’s replacement deal kicking in next month for a year, offers less support for small businesses. While market prices have stabilised for firms fixing their contracts now, or who are on variable tariffs, the FSB says those who fixed last year will see huge increases as they are locked into a high price before the Government’s relief.
The representative body quotes the example of a pub using 48,000 kWh per year in power and 192,000 kWh in gas which signed a new contract last August. Under the outgoing EBRS, the business would have received £60,000 off an estimated £85,000 annual bill. Under the incoming EBDS, the same business would receive only 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 – shattering their budget plans, and in many cases making it unviable for them to remain open without the help provided by the EBRS.
FSB found 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 appealing to energy companies for sympathy with the plight of small firms, and to allow them to renegotiate or ‘blend and extend’ their energy contracts, and benefit from significantly lower wholesale energy prices which are now available.
In the longer term, the organisation wants small firms’ progress towards Net Zero to be supported by the government through of a ‘Help to Green’ scheme. The measure would offer small firms a £5,000 voucher to invest in energy-saving or even energy-generating measures, such as better insulation, solar panels, or a heat pump.
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.