A new paper released by Cornwall Insight has argued that the energy crisis could have a severe consequence on equality across businesses in the UK.
With businesses in the UK expected to be hit hard this winter due to the ongoing energy crisis, 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, says 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.
“Much attention has been placed on the increase in domestic consumer energy bills, with dramatic increases in the price cap,” said Naomi Potter, lead research analyst at Cornwall Insight.
“With no such price cap for the business market, companies across the country are going to see as much as fivefold increases as the renewal period for business contracts approaches in early October 2022.”
Much like industry, pubs and breweries have been impacted heavily due to supply chain issues leading to the British Beer and Pub Association (BBPA) calling for “urgent action” from the UK government in order to prevent catastrophe amid soaring energy bills.
Another impact has been from the COVID pandemic. With many businesses having to make cuts during this period to ensure they were able to continue day-to-day operations, the wholesale gas price rise has now increased the strain on energy-intensive companies.
The scale of businesses has a factor as well. Larger companies are more likely to stay afloat however medium to smaller businesses could struggle as a result of the energy crisis. Hospitality is another sector that is especially vulnerable due to the high proportion of small and medium sized businesses that comprise this sector.
Cornwall Insight suggests that, given the challenging energy environment, many businesses are attempting to hedge for future changes in energy prices, through sourcing flexible and long-term contracts from business energy suppliers.
Several factors could be adopted by businesses to help them transition through the tough energy crisis. Outlined within the paper, shorter term solutions include saving energy on lighting, heating and air-conditioning.
These are already being implemented widely across Europe and could help businesses this coming winter, with other demand side management such as the adoption of smart technologies to identify the cheapest times to consume energy, having a longer-term impact.
However, if these measures do not support businesses and many closures are witnessed, increased inequality is set to rise across the UK with growing job losses.
“The pain will not be felt uniformly across the country, with industries typically seen in areas included in the government’s Levelling Up agenda being hit the hardest. If businesses such as manufacturing and hospitality see more closures, unemployment in already struggling regions is likely to rise, with the sad conclusion being an increase in inequality,” added Potter.
“Given the rise in energy costs is outside the parameters of normal markets and certainly outside the control of businesses, placing all the burden of reducing bills at the feet of businesses, is neither palatable nor likely sustainable, as the calls for intervention from business groups aptly demonstrates.”