The Federation of Small Businesses (FSB) has urged energy suppliers to renegotiate fixed contracts for small businesses on market-peak tariffs.
FSB has warned that with more than one in ten small firms in fixed contracts during the market peak in 2022 – when some were being quoted up to £1 per kWh for electricity – 93,000 small firms are now at risk of closing down, downsizing or radically restructuring their businesses due to being trapped in the contracts.
In order to prevent this, FSB has called on energy suppliers to allow small firms locked into fixed tariffs from last year to renegotiate contracts to better reflect the lower wholesale energy prices being witnessed today.
The call comes at a time when businesses are facing increased uncertainty following the replacement of the Energy Bill Relief Scheme to the less supportive Energy Bills Discount Scheme (EBDS). This occurred on 1 April 2023 and will last until 31 March 2024.
However, Cornwall Insight’s Delivered Electricity Cost forecaster recently revealed that due to the introduction of the EBDS, UK businesses are facing electricity bill rises of up to 133% in comparison to last year.
FSB said that the downscaled government support means small firms that signed up to fixed tariffs in 2022 will see their bills revert back to last year’s peak levels. This could be three or four times what they were paying when the more generous government support scheme was in place.
Four in ten (42%) of small firms that fixed contracts in the second half of 2022 say it has been impossible for them to pass on costs to consumers as spending has tightened.
“Having come out from a tough winter, this Spring is supposed to be the beginning of economic recovery, but tens of thousands are still very much in survival mode because they are tied-in to sky-high energy contracts,” said FSB policy chair Tina McKenzie.
To solve the issue and support small UK businesses, FSB has called for an option to renegotiate fixed contracts to be made available to businesses which:
- Negotiated the new energy contract between 1 July and 31 December 2022.
- Can confirm the level of wholesale price on the contract is above the EBRS wholesale price cap.
- Can confirm the end date of the contract to demonstrate the length of exposure to higher prices from April 2023 onwards.
“Many small businesses agreed to lock in energy contracts last year to ensure they qualified for the maximum level of government support. Now, with that support largely disappearing, they are once again faced with massive energy bill hikes as rates go back to pre-Energy Bill Relief Scheme level,” McKenzie added.
“It’s disheartening to see a significant proportion of small firms could be forced to close, downsize or radically restructure their businesses just when we look to grow our economy. Our community shrank by 500,000 small businesses over the two years of COVID; we shouldn’t now be adding any more to that gruesome tally.
“The least energy suppliers should do is to allow small businesses who signed up to fixed tariffs last year to ‘blend and extend’ their energy contracts, so that their bills are closer to current market rates. We’d also like to see the government and Ofgem support this initiative.
“There are signs that small businesses may be about to turn a corner after last year’s downturn. Giving small firms a way out of last year’s market peak rates will accelerate the progress to recovery.”