- A pub paying £24,528 for energy a year under the old government support scheme will now pay £82,539 under the incoming scheme
- Hundreds of thousands of small businesses in this position have doubts as to whether they can continue trading
- FSB calls for small firms to be allowed to renegotiate or ‘blend and extend’ their energy contracts that were fixed last year and to support businesses becoming more energy efficient
The end of the Energy Bill Relief Scheme in seven days 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 in a week’s time, FSB is warning that 370,000 small businesses who fixed their energy bills last year may need to shrink, restructure or close when their bills revert to a higher price on April 1.
The new scheme kicking in on that day, the Energy Bills Discount Scheme, offers a far lower level of support for small businesses. 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 are locked into a high price before the Government’s relief.
As an example, a pub using 48,000 kWh per year in electricity and 192,000 kWh in gas which signed a new contract in August last year would have received a reduction of £60,000 on its estimated £85,000 annual energy bill under the outgoing EBRS. Under the incoming EBDS, that same business would only receive 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 - driving a coach and horses through their budgets and in many cases making it unviable for them to remain open without the help provided by the EBRS.
One pub owner in the Midlands told FSB last year his monthly energy bill was going to rise from £1,800 a month to £11,000 – an annual increase of over £110,000, and a near-impossible sum for the business to cope with, especially with other costs rising, and consumer confidence hitting new lows.
FSB finds 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 calling on energy companies to be sympathetic to the plight of small firms in this position, and to allow them to renegotiate or ‘blend and extend’ their energy contracts, to benefit from the significantly lower wholesale energy prices which are now available.
In the longer term, we want small firms’ progress towards net zero to be supported by the Government through the introduction of a ‘Help to Green’ scheme, providing small businesses with a £5,000 voucher to invest in energy-saving or even energy-generating measures, such as better insulation, solar panels, or a heat pump when cash balances are at rock bottom.
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.
“There’s much that could and should be done rather than leaving small firms high and dry. Allowing the most vulnerable small businesses to renegotiate or ‘blend and extend’ their energy contracts to better reflect lower wholesale energy prices is the least the Government and energy suppliers could do.
“A dozen trade associations representing businesses of all sizes and sectors, have come out to endorse the FSB initiative of ‘Help to Green’. This scheme would be on par with government support for homes and public buildings to retrofit.
“Our message to the Government is: show the small business community that they’re being treated as equal partner in this energy price crisis. That would keep 370,000 small firms off the cliff as well as the jobs and communities which depend upon them.”
Notes to editors
1). Example 1 – Pub (Example used in the Government announcement)
A pub has an electricity consumption level of 48,000 kWh per year and a gas consumption level of 192,000 kWh per year.
We assume that the pub placed a new contract for electricity on 22/08/2022 at 76.15 p/kWh (at the Market Reference Price set by the Government) paying now £36,552 per year for electricity (this is without any Government support).
On the same day, the pub placed a new contract for gas at 25.14p/kWh (at the Market Reference Price set by the Government) paying now £48,268 per year for gas.
For both electricity and gas, the pub now pays £84,820.
EBRS (which ran from 1 October 2022 to 31 March 2023)
- EBRS delivered savings to that business of over £26,424 a year for electricity, resulting in an annual electricity bill of £10,128.
- EBRS also delivered savings of over £33,868 a year for gas, resulting in an annual gas bill of £14,400.
- The total discount for both gas and electricity amounted to £60,292 per year. The total bill is £24,528 per year. This meant that the price increases did not need to be passed on to customers.
EBDS (coming in on 1 April 2023)
- Under EBDS the annual discount will be reduced to £941 for electricity and £1,338 for gas, or £2,279 for both gas and electricity. The business’s bill for electricity will go back up to £35,610 a year and £46,929 for gas. £82,539 per year for both gas and electricity.
- The business must now increase prices for customers, for whom visiting the pub is an expendable luxury.
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About FSB
As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.
FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.