Energy bills may force 93,000 small businesses to close

The Federation of Small Businesses (FSB) is urging energy suppliers to allow small firms locked into fixed tariffs from last year to renegotiate contracts to better reflect the significantly lower wholesale energy prices.

The call comes a month after massive cuts to government support on energy bills for businesses. Since 1 April 2023, the Energy Bill Relief Scheme has been downgraded to the Energy Bills Discount Scheme, which changes support to pennies that do not touch the sides of huge bills (see illustrative examples under notes to editors).

The downscaled government support means small firms that signed up to fixed tariffs in 2022 will see their bills revert back to last year’s peak levels. This could be three or four times what they were paying when the more generous government support scheme was in place.

FSB’s latest research shows more than one in ten (13%) small firms fixed their energy bills between 1st July and 31st December 2022, during which businesses were quoted up to £1 per kWh for electricity. Of this group, 13% say they could be forced to either close, downsize, or radically restructure their businesses, equating to 93,000 small firms across the UK.

A significant proportion of small firms stuck in fixed contracts are from the accommodation and food sector (28%), and the wholesale and retail sector (20%).

Four in ten (42%) small firms that fixed energy contracts in the second half of last year say it has been impossible for them to pass on costs to consumers who had to tighten spending and can’t afford further price increases amid the cost of living crisis.

FSB is calling on energy suppliers to allow these small firms to extend their fixed contracts but at a blended and lower rate – between their original fixed rate and the current, lower wholesale rate.

FSB Policy Chair Tina McKenzie said “Having come out from a tough winter, this Spring is supposed to be the beginning of economic recovery, but tens of thousands are still very much in survival mode because they are tied-in to sky-high energy contracts.”

“Many small businesses agreed to lock in energy contracts last year to ensure they qualified for the maximum level of Government support. Now, with that support largely disappearing, they are once again faced with massive energy bill hikes as rates go back to pre-Energy Bill Relief Scheme level.”

“If ending the successful support scheme is on the basis that wholesale energy prices have gone down, then our research sheds light on just how many small businesses have been overlooked as they are entangled in high fixed tariffs.”

“It’s disheartening to see a significant proportion of small firms could be forced to close, downsize or radically restructure their businesses just when we look to grow our economy. Our community shrank by 500,000 small businesses over the two years of COVID; we shouldn’t now be adding any more to that gruesome tally.”

“The least energy suppliers should do is to allow small businesses who signed up to fixed tariffs last year to ‘blend and extend’ their energy contracts, so that their bills are closer to current market rates. We’d also like to see the Government and Ofgem support this initiative.”

“There are signs that small businesses may be about to turn a corner after last year’s downturn. Giving small firms a way out of last year’s market peak rates will accelerate the progress to recovery.”