Iran war set to make SME energy bills skyrocket, business association warns

The Federation of Small Businesses (FSB) has told the Guardian that some SMEs in the UK could see their heating bills more than double as the conflict in the Middle East continues. 

The business association says 7% of SMEs nationwide currently rely on heating oil to keep their premises warm. However this figure increases by 10% for rural businesses. This reflects the more limited access to the national gas grid outside of cities and town, and pushes the ventures slated to be impacted heavily into the thousands. 

Business owners are now facing the prospect of having to finance hugely inflated bills or simply not heat their premises, which will, no doubt, impact their customers. 

Supply shock

The spiralling cost of heating oil has been in the headlines for weeks. Three weeks ago, the Government announced relief for low income families or those with vulnerabilities who have been hit hard by these rising costs. 

However, as The Guardian reports, this relief has not been extended to businesses reliant on it, nor have other protections been put in place to aid smaller firms. Even worse, the volatility of the market has left some business owners at the mercy of unscrupulous energy brokers, which many firms use to find contracts. 

Tina McKenzie, the policy chair of the FSB, told the newspaper that the current state we find ourselves in is “ripe for rogue brokers” looking to make quick money off panicking, information-poor businesses.

Wider impact

While small, independent businesses are facing perhaps the most difficult choices, new research from Barclays suggests that this crisis is impacting firms of all shapes and sizes.

In its latest Business Prosperity poll of 500 UK business leaders, 66% said that they are “already experiencing pressures from fuel and energy prices” and 37% shared that they have taken steps to reduce energy usage or improve efficiency in response. Nearly a third of businesses have also had to adjust their pricing.

The fuel price surges are also hitting at a time when businesses are already facing increased business rates; rising salary costs but also supply chain issues related to the conflict. 

This collision of multiple costs is pushing businesses to take action by cutting their spending. The Barclays survey revealed that 29% have already slashed their “discretionary spending or wider operational costs” but a further 38% are planning on doing so over the next six months. 

Calls for relief

The conflict is showing little signs of relenting at present, and associations representing Britain’s SMEs are calling for the government to take action now to help businesses with these soaring energy bills. 

Around 500 pubs and restaurants have been offered access to a scheme to help them cut their bills. However, as UKHospitality stated last month, support needs to be wider and immediate.

UKHospitality chief executive Allen Simpson wrote to Ed Miliband, and took aim at the recent business rates reforms, which many are claiming will prove catastrophic for some businesses. 

He suggested that addressing this could also be the solution to the energy price crisis. “The two clearest modes of support are on VAT and business rate. A reduction in the sector’s VAT rate would be quick to implement and easy to administer, given the experience during the pandemic,” he wrote. He also stated that local authorities could set their own levels of business rate relief, as they did during the last energy crisis. 

However, for businesses now nervously awaiting their energy bill or about to dial in a heating oil order, relief will not come fast enough; and it is likely that the majority will have to make cost savings or increase their prices to ride out this storm.