- More than one in ten small firms fixed energy contracts during market peak last year
- 93,000 small firms now say they could be forced to close, downsize or radically restructure their businesses
- Energy suppliers should give small firms the option to “blend and extend” their fixed energy contracts, renegotiating and signing up for longer
Hundreds of thousands of small businesses are trapped in contracts that mean their latest bills are at last summer's peak market rate for energy - even though wholesale prices have fallen since last winter, new research shows.
The Federation of Small Businesses is urging energy suppliers to allow small firms locked into fixed tariffs from last year to renegotiate contracts to better reflect the significantly lower wholesale energy prices we see today.
This comes a month after massive cuts to government support on energy bills for businesses. Since 1 April 2023, the Energy Bill Relief Scheme has been downgraded to the Energy Bills Discount Scheme, which changes support to pennies that do not touch the sides of huge bills (see illustrative examples under notes to editors).
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.
FSB’s latest research shows more than one in ten (13%) small firms fixed their energy bills between 1 July and 31 December 2022, during which businesses were quoted up to £1 per kWh for electricity. Of this group, 13% say they could be forced to either close, downsize, or radically restructure their businesses, equating to 93,000 small firms across the UK.
A significant proportion of small firms stuck in fixed contracts are from the accommodation and food sector (28%), and the wholesale and retail sector (20%).
Four in ten (42%) small firms that fixed energy contracts in the second half of last year say it has been impossible for them to pass on costs to consumers who had to tighten spending and can’t afford further price increases amid the cost of living crisis.
FSB is calling on energy suppliers to allow these small firms to extend their fixed contracts but at a blended and lower rate – between their original fixed rate and the current, lower wholesale rate.
The option to renegotiate fixed contracts should be made automatically available to businesses which:
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- negotiated the new energy contract between July 1 and December 31 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
FSB Policy Chair Tina McKenzie said: “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.
“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.
“If ending the successful support scheme is on the basis that wholesale energy prices have gone down, then our research sheds light on just how many small businesses have been overlooked as they are entangled in high fixed tariffs.
“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.”
ENDS
Notes to editors
1). Illustrative example on the level of support under the old and new energy support scheme
The following example of a pub is used by the Government in its Energy Bill Relief Scheme guidance.
A pub has an electricity consumption level of 48,000 kWh per year and a gas consumption level of 192,000 kWh per year.
If 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)
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- 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.
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.
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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.