Businesses energy support slashed: Industry leaders warn small firms could go bust

Thousands of small businesses are at risk of bankruptcy if the government cuts energy support, according to industry figures.

On Monday, Chancellor Jeremy Hunt announced a new discount scheme for companies that will run until March 31, 2024.

Currently, taxpayers are subsidizing energy bills to the tune of £18bn, limiting the price of gas and electricity to £75 and £211 per megawatt hour respectively until the end of March.

From 1 April 2023, businesses will get a unit discount of up to £6.97 per megawatt hour for gas and up to £19.61/MWh applied to their electricity bill.

A typical pub can expect a rebate of up to £2,300 over 12 months, and a small shop can expect up to £400 off their annual utility bill, the government said.

More support will be given to companies with higher energy consumption and trade intensity, including steel, ceramics and food production.

However, market leaders have hit back at the fixed per-unit discount rate, which is six times less generous than current aid, and warn it won’t be enough to stem the tide of companies going out of business.

Martin McTague, president of the Federation of Small Businesses, said the new arrangement was a “huge disappointment.”

“While the new year should be a time of optimism and excitement, 2023 looks like the beginning of the end for tens of thousands of small businesses, which depend on government energy support to survive this winter,” he said.

“What is certain about this catastrophic step is that after March there will be an abyss. The little fish and chips around the corner, your local pub and the family run independent launderette – all will see much higher bills. That’s up to the government.’

Although wholesale gas prices have started to fall in recent weeks, they remain at a high level and many companies signed firm contracts when prices were higher.

Research from FSB shows that a quarter of small businesses expect to close, downsize or change their business model once the energy limit expires in March.

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McTague added: ‘For those struggling, the discount from the new version of the scheme is not material. Many small businesses will not be able to survive on the money provided through the new version of the scheme.

“This has gotten so out of hand. Two pence of a kWh on electricity and half a pence on gas is totally unimportant to small businesses, despite costing taxpayers billions. The government will inevitably have to come back.’

Sacha Lord, overnight economics adviser for Greater Manchester, tweeted that the announcement was the “final nail in the coffin” for many.

UK Hospitality estimates the new scheme will cost the industry at least £4.5 billion over the next 12 months.

Trade organization boss Kate Nicholls urged Hunt to consider other measures to help the industry, including an increase in the corporate tariff exemption limit.

New regulation ‘threatens to fuel inflation’

Industry figures have also warned of the implications for the wider economy if small businesses are left to fend for themselves.

The director of the UK Chambers of Commerce, Shevaun Haviland, said: ‘We understand that government needs to take public finances into account, but any support package, short or long term, has to be suitable for business – otherwise we are going round in circles .

“It’s a critical year for the UK economy and with the right targeted support, companies can help turn the economy around and bring the UK back to growth and prosperity.”

McTague said the sudden drop in support could fuel inflation as small business bills rise and they are forced to raise their prices.

He added: “The original EBRS scheme suppressed inflation by 5 percentage points, but this has been cancelled… Cutting aid will lead to higher inflation just as we enter a recession.”