Warning that energy crisis could lead to thousands of companies collapsing

The Confederation of British Industry (CBI) (CBI) has warned that the escalating energy crisis could lead to thousands of companies collapsing without Government support.

The CBI has urged the government to freeze business rates for another year and take quick and targeted action to prevent otherwise viable businesses from going bust.

The lobby group said two-thirds of businesses were facing a jump in their bills over the next quarter. Of those, a third (69%) face increases of more than 30%.

The research found that firms are doing their best to absorb costs, with around one in three saying they do not expect to pass on additional energy costs

The CBI says that it is working with new ministers to explore all options for navigating the crisis and has today proposed a 3-point plan that can be delivered at pace to support vulnerable consumers and businesses by targeting help where it is needed most, cutting costs, and kick-starting an energy efficiency drive that reduces demand and boosts the UK’s energy security.

(1) To target support at those households and firms most in need, the UK Government should:

Urgently introduce targeted interventions for the most vulnerable households, through existing mechanisms like the Energy Bills Support Scheme
Instruct HMRC to replicate Time to Pay flexibility granted during the pandemic to take account of energy price rises
Launch a publicity drive around the recent extension to the Recovery Loan Scheme and commit to its expansion should evidence show this is needed; preparatory discussions with lenders should begin now, so future decisions can be taken at pace if the situation deteriorates and further help is needed

(2) To help keep costs down, the UK Government should:

Announce a business rates freeze now for 2023/24. This would head off a business-as-usual approach that would otherwise see rates increasing with inflation, and piling additional pressures on firms when they can least afford them. (Governments in devolved nations should do the same)

(3) To kick-start an energy efficiency drive to reduce demand, the UK Government should:

Roll out an ambitious programme to improve energy efficiency by providing people with upfront financial support to help retrofit household insulation (through a new ECO+ scheme)
Provide energy efficiency support for the most energy intensive sectors through an expansion to the Industrial Energy Transformation Fund

Matthew Fell, CBI Chief Policy Director, said “The impact of soaring energy prices on households is going to have serious consequences, not just for individuals but for the wider economy.”

“While helping struggling consumers remains the number one priority, we can’t afford to lose sight of the fact that many viable businesses are under pressure and could easily tip into distress without action.”

“The guiding principles for any intervention must be to act at speed, and to target help at those households and firms that need it most.”

“Firms aren’t asking for a handout. But they do need Autumn to be the moment that government grips the energy cost crisis. Decisive action now will give firms headroom on cashflow and prevent a short-term crunch becoming a longer-term crisis.”

Douglas Grant, Group CEO at Manx Financial Group PLC, sai: “The CBI’s warning over the energy crisis and addressing business rates should be heeded. We believe that demand for working capital, which has already reached unprecedented levels, will soar even further as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.”

“Having successfully deployed multiple relief schemes – BBLS, CBILS and RLS – for SMEs throughout the pandemic, the UK government should, in our opinion, now turn their attention towards a permanent loan scheme to help leverage businesses going forward. Now is a vital time for the Government to work together with traditional and alternative lenders to guarantee the future of our SMEs and to ensure the successes of these emergency schemes are not wasted.”

“As we look towards the post-pandemic era many SMEs are at a critical tipping point, some between failing and surviving, others between surviving and thriving. As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. SMEs would be well-advised to take stock of their current capital structure and if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.”