Energy bills: T minus 7 as small firms face 'tipping point'
Hundreds of thousands of small UK firms are at risk with the end of the Energy Bill Relief Scheme in seven days, the Federation of Small Businesses (FSB) has warned.
With help for energy bills to be radically downscaled, the FSB is warning that as many as 370,000 SMEs who fixed their energy bills last year may need to shrink, restructure or close when they revert to higher prices on April 1.
The new scheme taking effect on April Fool's Day is "no laughing matter" according to Tina McKenzie, policy chair at the FSB. The Energy Bills Discount Scheme (EBRS) offers a far higher level of support for small businesses than its successor, the Energy Bills Discount Scheme, which will give firms a reduction on wholesale prices rather than costs being capped.
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Ms McKenzie said that 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 locked into a high price before the government’s EBRS relief scheme took effect.
“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," she said. "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."
According to the FSB's analysis, a pub using 48,000 kWh per year in electricity and 192,000 kWh in gas which signed a new contract in August 2022 would have received a reduction of £60,000 on its estimated £85,000 annual energy bill under the outgoing EBRS. With the incoming Energy Bills Discount Scheme, that same business would receive little more than £2,000 in support, leaving it a bill to settle of nearly £83,000.
The FSB found that approximately 24 per cent of small businesses are locked into energy contracts that were signed last year, at a time when wholesale prices were soaring, and that 28% of this group will potentially have to downsize, rethink their business model, or even close when they are hit by the rise in energy costs.
READ MORE: Energy bill support for firms to be reduced from April
In the short term, FSB is calling on energy companies to allow small firms to renegotiate or "blend and extend" their energy contracts, to benefit from the significantly lower wholesale energy prices which are now available.
“There’s much that could and should be done rather than leaving small firms high and dry," Ms McKenzie added.