The Federation of Small Businesses (FSB) is warning that discontinuing government energy support at the end of March would force tens of thousands of small firms to close or downsize.
This comes ahead of the publication of the Energy Bill Relief Scheme review, which is due imminently – when the government will decide whether current energy support for small firms will continue after the six-month coverage ends on April 1, 2023.
Latest FSB research shows that one in four small firms (24%) plan to close, downsize or restructure if energy relief comes to a sharp end in April next year.
This rises to 42% of firms in the accommodation and food sector, followed by the wholesale and retail (34%), and manufacturing sectors (29%).
A third (30%) of small firms expect to cancel or scale down planned investment if the government ends support on energy, while more than four in ten (44%) consider raising prices to cope with soaring bills, although it will be impossible for them to pass on full costs to consumers tightening their belts amid the cost of living rises.
From local pubs and knitting shops to laundry services, small firms in this tough winter are reluctant to turn their heat up, as every extra degree will affect the viability of their small business.
“Covid never worried me as we were supported from the beginning. This energy crisis however is very bad. I might not be here next year,” said Stuart Race, who owns the Woolpatch, a knitting shop.
Others were asked by energy suppliers for disproportionate upfront payments when trying to secure new contracts. “Out of the three gas suppliers I approached for new quotes, two including my incumbent supplier wanted a £16,000 deposit,” said Rona Tait, who runs laundry service TDS Commercial, despite having a good credit rating.
We’ve also heard reports of energy suppliers filing winding up petitions against cash-strapped small firms when they fall into arrears.
FSB has proposed through the Government’s review that there should be significant support for small businesses for at least the next 6-month period, based on a fixed wholesale price. There should however be further controls added on energy suppliers to prevent them cutting vulnerable small businesses off who fall into arrears, hiking their standing charges and enabling them to offer Time To Pay in the same manner as HMRC with tax debts.
Continuing to apply support directly to bills, as in the current scheme, will ensure that there is no deadweight cost, and will minimise the chances of small businesses who should be entitled to support missing out. The current delivery mechanism is therefore preferable to local authority-based grants, or loans that small businesses who are steeped in debt since COVID, with low cash reserves, cannot afford to repay.
FSB National Chair Martin McTague said: “After two long years of Covid, this Christmas was supposed to the one bringing back that small business spirit – but many small firms are now worried that they might have to shut their doors for good in a few months, if not weeks.
“More than 16 million jobs are in small firms. Our members are telling us their businesses as well as their staff are dependent on government support in this energy price crisis.
“We’d like to see the upcoming publication of the review taking business size into account, acknowledging the fact that small firms have typically lower margins and are least able to deal with skyrocketing energy costs – a purely sector-based decision will lead to deadweight and unfairness.
“At the same time, Government must intervene when energy suppliers find routes to inflate prices, raise standing charges, and ask for disproportionate upfront payments – these heavy-handed practices defeat the whole purpose of the multi-billion-pound relief scheme and will drive more small firms to go under.”