Rishi must protect SMEs from soaring energy costs

Gas burner rings alight, energy costs concept

The last few years have been extremely challenging for businesses. The Covid-19 pandemic is estimated to have cost SMEs over £126.6 billion in total, and we have seen a record number of companies falling into administration in England and Wales.

Yet at the beginning of 2022, there was a cause for optimism following a successful vaccine rollout plan and slow lifting of lockdown measures. A recovery was on the horizon, ensuring businesses could properly bounce back from the disruption caused by the pandemic.

Now, businesses face a new setback – rising energy costs.

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Energy prices have risen to unprecedented levels. UK gas prices are currently trading at about 460p per therm compared with 45p per therm this time last year.

Moreover, Ofgem, Britain’s energy sector regulator, recently stated that its price cap would be raised by 54 per cent in April, marking a record-breaking increase.

‘Spiralling energy costs could put the UK and its businesses on the brink of a national crisis’

Given this and the energy market disruptions spurred on by the Russia-Ukraine conflict, spiralling energy costs could put the UK and its businesses on the brink of a national crisis.

Although rising energy costs have been widely reported on from a consumer perspective, particularly against the backdrop of an increasing cost of living, media attention is now shiftingto businesses across the country.

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A recent report by payment provider Tyl Natwest found that 70 per cent of SMEs believe the cost of their energy bill has negatively affected their businesses’ growth. A further 54 per cent stated that they were currently spending £3,000 or more on annual energy bills; this is a significant amount of revenue for many small businesses, a further increase would be insurmountable.

Unlike households, there are no energy price caps for business energy rates – meaning there is an alarming possibility these will spiral out of control. Many UK businesses are working on fine margins, so even a slight rise in energy prices can have disastrous consequences. Whilst the Chancellor has announced that residential electricity customers will receive a £200 discount on their electricity bills from October, which will later have to be repaid over the next five years, he hasn’t offered any support to UK SMEs.

Unless drastic action is taken, substantial price hikes will cripple many SMEs who are still trying to get back on their feet after the economic turmoil of the pandemic and relentless Brexit red tape.

Make no mistake about it – SMEs are the backbone of our economy, making up 99 per cent of the UK business population and three-fifths of employment. Whilst big corporations can use their purchasing power to negotiate competitive longer-term energy tariffs with a supplier, SMEs don’t have this privilege. We have seen first-hand at Fintrex, SMEs who are left to make ends meet against the backdrop of a record tax burden, wage pressures, and the super deduction’s end.

In order to allay these issues, the Government must champion SMEs and offer financial support. Given that the government wants to build a green economy, they should incentivise businesses to adopt energy-efficient measures, saving the environment and protecting SMEs from future price rises. The 2022 Spring Statement on 23 March could be the ideal moment for Chancellor Rishi Sunak to implement more immediate reforms.

3 ways you can cut your energy bills

However, that being said, it is also on business leaders to streamline their operations:

  • Reassess immediate expansion plans
  • Reducing staffing costs
  • Re-evaluate any non-essential business expenses

Any of the above will help reduce overhead costs and make sure you are better prepared to deal with future energy rises. Taking a few practical precautions could prove a necessity for your business’s future.

Neil Debenham is a business trouble-shooter, consultant and private equity specialist who has facilitated over £50 million worth of private equity and debt investment into scaling UK businesses

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