Thousands of small businesses face closure this weekend

At the start of next month, the Energy Bill Relief Scheme (EBRS), the government’s financial aid package for small business utility bills, will end.

Unamusingly timed to coincide with April Fool’s Day, this support wind-down could threaten the future of hundreds of thousands of small firms, according to research by the Federation of Small Businesses (FSB).

The scheme has been an essential support for thousands of firms grappling with rising wholesale energy prices. Replacing it will be the Energy Bill Discount Scheme (EBDS), which is notably less generous than its predecessor.

The FSB estimates that 24% of small businesses – around 1.3 million – are currently locked into energy contracts that were signed last year, at a time when wholesale prices were soaring.

It is now warning that 28% of these – a colossal 370,000 businesses – may need to shrink, restructure, or even close when their bills revert to the higher price.

Rising energy bills threaten small business survival

The invasion of Ukraine last January has triggered not only a humanitarian crisis, but also a shortfall in global oil and gas supplies from Russia. SMEs were hit hardest in the immediate fallout, with many unable to absorb the added fees.

Market prices have since stabilised – although they remain at a considerably high rate – for those who are renewing their contracts in 2023, either on fixed or variable tariffs. But those who fixed last year are locked into a high price. They will see huge increases when the government support ends on April 1, triggering doubts over their future.

As an example, let’s say a pub signed a 12-month fixed contract in August last year. It uses 48,000 kWh per year in electricity and 192,000 kWh in gas.

Based on the Energy Bill Relief Scheme legislation, it would have received a reduction of £60,000 on its estimated £85,000 annual energy bill.

However, once the switch to EBDS takes place, that same business would receive just over £2,000 in support. That will leave it with a bill to settle of nearly £83,000 – at a time when diminished customer spending has already squashed sales figures.

Decimated profit margins

Startups has previously spoken to multiple SMEs who said that hiked energy bills had decimated their sales and profit margins from 2022 onwards.

One local shop owner had been forced to shut up shop and move online as a result of price squeeze. Another admitted they had only turned the heating on once in the entire month of December.

Illustrating the scale of the problem is Tim Martin. The owner of stein-sized pub chain, Wetherspoons, who we spoke to last year about the decline in pub numbers, last week announced a 90% profit loss in the six months leading to January.

Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB) said: “The jump in energy bills 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.”

FSB: “government and providers must show sensitivity to small business struggles”

Earlier this month, Startups heard from a number of entrepreneurs who were hoping for more support for energy bills to be announced in the March budget. Instead, they were handed a rise in Corporation Tax and small business rate valuations that will dampen profits and slash incomes.

With the government set to pull the financial rug out from under SME feet this Saturday, the FSB is calling on energy companies to show sympathy to the money troubles of UK firms.

It says providers must give customers in a fixed contract the option to renegotiate or ‘blend and extend’ their energy contracts. This will leave them open to benefit from the lower wholesale energy prices that are now available.

Business owners worried about the impact that Saturday’s price rise will have on their utility bills should contact their provider directly to flag any concerns as soon as possible. They will be able to set up a repayment plan to settle any debt.

In the meantime, our guide on budgeting for rising energy costs has more information on how to strengthen cash flow for the impending hit.

The FSB has also lobbied for the introduction of a government ‘Help to Green’ scheme, which would provide SMEs with a £5,000 voucher to invest in energy-saving or energy-generating measures.

More support for a green transition is something that Elizabeth Jones, owner of Balham-based children’s clothing and gift shop, Natural for Baby, was hoping to see in the Spring Budget.

“I believe it would be a much fairer system for those of us on green energy tariffs to have a bigger discount [on bills],” she told Startups. “I can’t see why we should pay more for gas and oil when the providers we use should be investing and using alternatives.”

Last year, Startups spoke to one small business owner who managed to halve their energy bills by using green technologies including an EV vehicle, solar panels, and heat pump.

Tina Mckenzie elaborated: “There’s much that could and should be done rather than leaving small firms high and dry. Our message to the government is: show the small business community that they’re being treated as equal partners 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.”