The UK’s business sector could be on the verge of complete catastrophe and irreversible damage.
Amid an energy crisis that has rocked Europe, particularly Britain, government and energy suppliers have scrambled to introduce support schemes to mitigate the impact the high wholesale energy prices will have on the everyday British household.
In early September, Prime Minister Liz Truss made one of her first calls of action to set the unit price of energy at 34p/kWh for two years from October onwards as part of a range of measures designed to address the energy crisis. This will see the average UK household expect to pay £2,500.
Alongside this support for British households, there will be significant relief for British businesses. As part of the government’s intervention, the MWh price for electricity and gas for businesses this winter has been set at £211/MWh and £75/MWh respectively.
However, what else has been done to support British businesses?
Amidst the energy crisis, businesses could potentially could face energy bills five times higher than what they’re currently paying from October onwards.
A multitude of industries could be hit hard by the energy crisis, from small independent businesses to large chains. Industries such as manufacturing and heavy industry in the North East, Yorkshire and Humber and the West Midlands are subject to an increased likelihood of business failure and in turn inequality, said Cornwall Insight.
A primary reason why these particular industries are set to be hit the hardest is due to the proportion energy makes of their total cost, and the difficulties passing costs on to consumers given their position in supply chains.
“You have the energy intensive users, such as industrial business, who use the most in absolute terms but do receive some exemptions to help with energy costs. Bigger companies use more energy but might be in a better position to withstand price rises or when negotiating new deal,” an Energy UK spokesperson said.
“Smaller firms won’t have this advantage and depending on your line of business, you could have particularly high energy needs. The hospitality sector is certainly getting highlighted as one in particular danger but it’s fair to say there aren’t many that won’t be affected – and don’t forget the non-domestic customers who aren’t businesses such as schools, hospitals, care homes, libraries, local authorities etc.”
Pubs and Breweries for example may be dealt significant energy bill increases which could drive many to shut down as a result this winter and throughout 2023 without proper intervention.
This prompted the British Beer and Pub Association (BBPA) to call on the UK Government last month for “urgent action” in order to prevent catastrophe amid soaring energy bills.
In a letter to the Government, the BBPA outlined that pub and brewing businesses across the UK are at risk of closure due to the out-of-control energy bills, with upwards of 300% price hikes reported.
According to the businesses, the energy crisis will impact the entirety of the industry’s supply chain, with major CO2 producer CF Industries announcing it will be ceasing production of what is a critical component in beer production and dispensing in pubs, citing market conditions as a key decision driver.
This is something Energy UK has recognised with a spokesperson having said: “The Office of National Statistics published some data in August stating 33% of businesses said they had been affected by energy price rises. However, this rises to 64% of businesses in accommodation and food services.”
What is the scale of the challenge?
The scale of the challenge to support businesses throughout the energy price rise is monumental. All companies are expected to feel the collective hit of the energy crisis in the UK and without intervention from the Government, the winter months could be one of the hardest for the sector.
“Many non-domestic customers are currently looking to renew their energy deals as their fixed term contracts expire,” said Energy UK.
“With wholesale gas prices having climbed to ten times the level they were at the start of last year, these customers are finding their energy costs have risen substantially since they signed up to their previous deals.
“This is potentially very serious; it could lead to businesses reducing operations or even stopping trading.”
The prospect of businesses shutting down amid the winter months could have a severe impact on both the British economy and the welfare of the general public amid the energy crisis. Crucial industries could be forced to stop operation meaning many customers will not be able to access services and thousands of jobs could be lost, further impacting the economy.
This is also supported by EDF Energy who told Current±: “The energy crisis has created a huge amount of uncertainty when it comes to energy budgeting, and this coupled with the rising costs of raw materials, goods and labour is creating an increasingly difficult environment for business to survive in.”
“Things are certainly more hopeful following the announcement from Liz Truss on the 8 September 2022 which set out plans for an ‘energy price guarantee’ and intentions to support businesses, charities and public sector organisations for six months with extra support to follow,” an EDF Energy spokesperson said.
The potential for the Energy Bill Relief Scheme
A new measure introduced by Truss includes the vitally important Energy Bill Relief Scheme. As indicated by EDF Energy, the legislation could be critical in ensuring businesses are supported throughout the winter months and into 2023 as the impact of the energy crisis is set to intensify.
As part of the move to freeze the price of energy, the scheme will remove green levies paid by non-domestic customers who receive support under the scheme – this mirrors the Energy Price Guarantee.
The Energy Bill Relief Scheme will run from 1 October 2022 until 31 March 2023, with a three-month review scheduled for the halfway point.
Businesses will not need to sign up to the scheme as the financial support, in the form of a p/kWh discount, will be added automatically to bills.
“The government scheme will bring significant relief to many businesses and public sector organisations as they try to navigate the unprecedented energy rises. Economically it was important that government took action,” said Robert Buckley, head of relationship development at Cornwall Insight.
“Structuring this as fixed discounts on wholesale energy costs caps the cost of the scheme for government at around £25 billion. There will also be a strong incentive for businesses to move from out of contract to negotiated contract terms, which acts to maintain the integrity of the market. This will be very important for what emerges after these six months have elapsed.”
In his mini-budget, dubbed the Growth Plan, Chancellor Kwasi Kwarteng announced that he expects the scheme to cost £29 billion.
Although the measures will provide relief for businesses, Buckley hopes this will lead to further developments in increasing energy self-reliance in the future and accelerate green energy generation.
“We hope that in the longer term, reform of the energy market is given priority to avoid prolonged reliance on emergency interventions and return to normal market dynamics can take place,” he said.
A rosy outlook for businesses?
The Government introduced the Energy Bill Relief Scheme to help alleviate some areas of concern amid the energy crisis, but it is important to note that these measures will run initially on a six-month basis with various reviews throughout. This means changes could be implemented to address future issues, both for better or worse.
This poses the question of what will businesses do come April 2023? If they no longer receive support, businesses are left at the mercy of jumping wholesale gas prices which is expected to fluctuate in the coming years. This is referenced by Cornwall Insight which suggested that the Default Tariff Cap is predicted to stay above £3,000 a year for the next 15 months. This has a severe impact on a business’s strategic planning.
Although these measures will run for an initial six-month period, with a three-month review identifying vulnerable businesses in need of extra support, there is no guarantee that this will be extended. Businesses have to factor this in and plan for a possible drop in the support measures. This could have an impact on recruitment, job losses, supply chains and other issues.
With the wider cost of living crisis biting, energy prices expected to remain high for years to come and the pound hitting record low levels, the limited timeframe of the government’s support package may leave many wondering if it is merely delaying the collapse of businesses.