The Federation of Small Businesses’ latest report, Out in the Cold, found that close to two-fifths of small firms have their energy bills doubled, tripled or even higher and around 45 per cent of them have had to pass those costs on to consumers.
The cost of energy has also seen nearly a quarter of firms delay investments and business expansion.
With the startling figures that indicate small firms are on the brink, the FSB said immediate action needs to be taken by the government and new Prime Minister Liz Truss and it has set out a number of proposals that could alleviate the pain of rising energy prices.
The Out in the Cold report found that the overwhelming majority (96 per cent) of small firms flagged concerns about rising energy bills. Concern is spread broadly across the economy, with 71 per cent of small firms across all sectors reporting they are very or extremely concerned. Those in accommodation and food (68 per cent), wholesale and retail (45 per cent) and manufacturing (43 per cent) reported they are extremely concerned.
Compared to last year, nearly two-thirds of small firms (63 per cent) said they are paying more for electricity and gas this year, with two in five (39 per cent) seeing double, triple or even higher increases in their bills, despite many having yet to renew their energy contracts.
The majority of small firms (72 per cent) in Scotland — higher than the UK average — said their energy costs have increased over the past year. Of them, almost half (49 per cent) have seen their bills double or more. Close to two-thirds (65 per cent) of small firms in Wales have seen similar increases.
The soaring energy bills are forcing nearly half (45 per cent) of small firms to raise prices. Two-fifths have taken steps to reduce energy consumption although options are limited. Nearly a quarter (24 per cent) have cancelled or scaled down plans for investing in or expanding their business.
In light of the findings, FSB is urging the UK government, alongside devolved administrations as appropriate, to provide direct support with their energy bills to small businesses.
It has set out a mixed policy package of fiscal and regulatory measures, including:
- Expand the scope of the price cap, which currently only protects domestic customers, to include sole traders and microbusinesses (zero to nine employees) and small businesses (10–49 employees). Microbusinesses need consumer protection in the same way that individuals do. They are more akin to domestic customers when deciding on their energy provider, including lacking expertise in purchasing energy to having poor bargaining power. Including microbusinesses in the price cap will provide an urgently needed cap on soaring energy prices for the smallest businesses.
- Reduce business rates to help small firms adapt to the energy price increases. This would help reduce the impact of price rises, especially as these are typically paid monthly. Due to many small firms being in receipt of the retail rates discount or SBRR, and the scale of price rises, this measure would need to be accompanied by other measures to provide support to those firms.
- Provide direct cash support to small and microbusinesses to help with energy bills. To support small firms during the pandemic, the government provided £3,000 vouchers to around 700,000 businesses that were eligible for Small Business Rate Relief or Rural Rate Relief. We propose a similar intervention here, which would be focused mainly on helping small firms that received small-business rates relief or otherwise do not benefit — or benefit sufficiently — from tax reduction mechanisms.
- Cut taxes temporarily on energy for one year initially, with the possibility of extending the measure if global prices remain high. The government could implement a temporary VAT reduction on business energy and/or fuel bills, either by lowering the 20 per cent and 5 per cent rates, or by increasing the energy usage threshold at which the lower 5 per cent VAT rate applies. A VAT reduction would deliver cash flow benefits to those businesses that can reclaim VAT costs, reduce costs for firms that are not VAT-registered, and lower bills for domestic consumers. The UK should clarify whether this reduction could apply to Northern Ireland businesses, and if not, we want to see similar measures in place for the devolved nation.
- Issue £5,000 vouchers for businesses to spend on qualifying energy-saving products and services under a “Help to Green” initiative. This would be similar to vouchers issued via the “Help to Grow Digital” scheme. The voucher could, for example, be used to fund an audit to measure a firm’s energy consumption with relevant advice on how to reduce energy consumption, or to enable firms to replace equipment and materials to become more energy-efficient.
- Commit to not disconnecting businesses from energy supply that are currently unable to pay for their energy bills this winter, and not asking for disproportionate upfront payments. We would like to see energy companies make this commitment and work with individual small-business customers. We suggest offering bespoke finance plans and hardship funds for this winter that will enable firms to continue trading.
- Encourage consumers to shop locally and support their local businesses. Small businesses are at the heart of communities, offering employment opportunities and valuable services. However, the burden of rising energy costs and competition from larger companies, are putting small businesses across the country under immense pressure. FSB is calling on consumers to continue to shop locally and do all they can to support local businesses.
“From the hair dressing business facing a six-fold increase in their energy costs to the sports bar who needs to pay £103,000 more for electricity and gas a year, we’ve seen countless examples of small businesses struggling with energy bills to the point where owners stop paying themselves wages or even close their doors over the summer,” FSB national chair Martin McTague said.
“Small businesses themselves are doing all they can to cut their energy use and cut costs, but it won’t be enough to save many this winter without further help.
“These small businesses are the ones that managed to get through the unprecedented pandemic often with government help. We can’t leave them behind in this energy crisis as millions of jobs, livelihoods and communities depend upon them.
“The cheapest energy is the energy we don’t use. With small firms wanting to go further on energy efficiency and micro-generation, but constrained by a lack of capital and unclear returns on investment, now is the ideal time for Government to introduce Help to Green vouchers.
“As the new Prime Minister and Chancellor prepare their full package of emergency plans, we urge them to take forward our proposals and deliver bold and big action that matches the scale of this lingering crisis before we head to a possible recession in autumn.
“To make the matter worse, some big energy companies ask small firms for a large sum of upfront payment, out of fear that they could go bust because of unaffordable bills, or they’ll refuse to supply their small business customers.
“We would like to see energy companies commit to not disconnecting their small business customers due to inability to pay this winter, and not asking for disproportionate upfront payments, which piles further cashflow pressure onto businesses, many of which are already in debt. If necessary, the Government could step in and provide a limited guarantee to these suppliers, so they won’t need large deposits.
“We also encourage consumers to support small firms. Many people will be tempted by large corporates wrapping cost of living marketing around their products and services, but this is the time when your local small business needs you the most.
“With our research indicating the existential threat facing 5.5 million of small businesses in the UK along with 16 million jobs within them, we don’t have the luxury to wait any longer. We stand ready to work with the Government to stop this cost of doing business crisis spiralling further.”
