The increasing cost of doing business has become a pressing concern for companies in recent months, with insolvencies reaching their highest levels since 2009. Businesses across various sectors are grappling with rising energy costs, labour shortages, and ongoing supply chain disruptions. This article aims to shed light on the impact of these cost-of-living pressures on businesses, outline the existing support options, and explore the need for additional assistance.
Businesses Hit Hard by Rising Costs
Like households, businesses have experienced significant spikes in energy costs. Unlike domestic customers, there was no cap on non-domestic energy prices until the UK Government introduced the Energy Bill Relief Scheme. Small businesses, particularly those in energy-intensive industries, reported staggering annual gas bill increases of up to 250% over the past year. Labour shortages have also plagued employers, notably in sectors like hospitality, retail, tourism, and social care. Low pay, job insecurity, and lack of worker empowerment were identified as key issues contributing to the recruitment crisis. Furthermore, ongoing supply chain disruptions have led to escalating delivery costs and reduced availability, particularly impacting rural businesses. Sectors hardest hit by the pandemic, such as tourism, hospitality, and certain retail businesses, are struggling the most due to their limited capacity to absorb additional costs and debt.
Understanding the Energy Bill Relief Scheme
To support non-domestic energy customers, including businesses, charities, and public sector organizations, the UK Government introduced the Energy Bill Relief Scheme. This scheme, which will last for six months, offers similar protections to the energy price cap implemented for households in 2019. Eligible organizations include those on fixed price contracts signed on or after April 1, 2022, those signing new fixed price contracts, and those on variable tariffs or flexible purchase contracts. However, organizations that had fixed price contracts signed before April 2022 are ineligible, as they "will not have been exposed to the recent rises in wholesale prices." The scheme sets a government-supported price of £211 per megawatt hour for electricity and £75 per megawatt hour for gas, significantly lower than anticipated wholesale prices for the upcoming winter. The level of support varies depending on the type and date of the energy contract, with reductions automatically applied to eligible organizations' energy bills by their suppliers. The UK Government plans to review the scheme within three months of its introduction to inform future support measures targeted at the most vulnerable non-domestic customers.
Available Support for Businesses
To assist businesses facing difficulties in paying their energy bills, Ofgem advises them to promptly contact their energy supplier. Businesses can explore various options such as payment plans, debt repayment reviews, payment breaks or reductions, extended payment timelines, and access to hardship funds. The Welsh Government also provides support in the form of business rate relief and resource efficiency advice. The Retail, Leisure, and Hospitality sectors can benefit from a 50% business rate relief in 2022-23, rising to 75% in 2023-24. The business rates multiplier has also been frozen for 2023-24, alleviating the burden for businesses. Additionally, Business Wales resource efficiency advisers assist in reducing energy, water, and waste usage. The Development Bank of Wales is also developing a scheme to aid businesses in funding decarbonization, while its existing funds can already support decarbonization efforts.
Future Support Measures
The UK Government recently unveiled the Energy Bills Discount Scheme, which will replace the Energy Bill Relief Scheme and operate from April 1, 2023, to March 31, 2024. This scheme will provide per-unit discounts on energy bills for businesses, voluntary sector organizations, and public sector organizations. The discount is calculated based on the difference between the wholesale price associated with the energy contract and a predetermined price threshold. Enhanced support will be available for energy-intensive industries. However, the level of support provided by this new scheme has drawn mixed reactions. While the CBI believes it will offer respite to businesses, particularly in energy-intensive sectors, the FSB views it as inadequate for many small firms.
As businesses continue to grapple with the impact of rising costs, including energy prices, labour shortages, and supply chain disruptions, the need for support is evident. While the Energy Bill Relief Scheme and other existing initiatives aim to provide relief, their effectiveness in mitigating the challenges beyond March 2023 remains uncertain. With the UK predicted to face a recession throughout 2023, it is crucial to monitor and assess the support available to help businesses weather the storm. Continued collaboration between governments, industry bodies, and businesses will be essential to navigate the ongoing cost pressures and safeguard the economic vitality of various sectors.
How can PSP help?
The energy terms found on your business energy bills can be very confusing and we understand the difficulties this can bring to business owners. We understand these challenges and will work with businesses to ensure that they fully understand their bills and to make better informed decisions when it is time to renew their contracts.