The UK government is to slash the amount of energy support for small firms in a move that has been described as "catastrophic" by the Federation of Small Businesses.
Chancellor Jeremy Hunt has announced a new energy support scheme for businesses, charities and public sector organisations which will replace the current scheme at the end of March. For many small businesses, it means energy prices could be about to soar.
The new Energy Bills Discount Scheme (EBDS) will run for a year from 1 April 2023 and will offer a discount on wholesale prices rather than a fixed price. It signals the end of an energy price cap for businesses and represents an 85% drop in the "financial envelope of support" for businesses according to the British Chambers of Commerce (BCC).
"What's certain from this catastrophic move is there'll be a cliff edge after March"
BCC director general, Shevaun Haviland, said: "Many businesses have been fighting for their survival for months, and rising energy costs have fast become the tipping point. While we welcome the 12-month duration of this package, its value is nowhere near far enough and means that for some firms, energy will now be a cost too far."
Martin McTague, national chair of the Federation of Small Businesses (FSB) described the decision as a "catastrophic move" that will "all but eliminate help through the Energy Bill Relief Scheme (EBRS) … Many small firms will not be able to survive on the pennies provided through the new version of the scheme.
"This is so out of touch. Two pence off a kWh of electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer … The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither."
Could many businesses close in 2023?
- According to the SME Insights Report, published by Simply Business, 54% of SME owners say rising fuel and energy costs are one of their greatest threats to survival. In addition, its latest survey findings indicate that 26% of small business owners are worried they won't be able to pay their bills this year.
- New research conducted by small business lender iwoca has found that 43% SME owners think they will personally be worse off by the end of 2023.
- FSB research has found that one in four small firms anticipate either closing, downsizing or radically changing their business model when the government reduces energy support after March.
Energy costs cliff edge
"What's certain from this catastrophic move is there'll be a cliff edge after March," said the FSB's Martin McTague. "The small fish and chip around the corner, your local pub and the family-run independent laundrette - all will see much higher bills. That's on the government."
He added: "Dividing the scheme into two tiers is sensible, but not so that the tier of support for any small businesses lighting or heating premises, or using freezers or ovens, has been set so low as to mean support diluted to such a feeble level. It would have been better value for money for small firms if the £2bn cost of their element of the scheme had been used to improve energy efficiency, to reduce the need for energy from the grid."
Calling for more government focus on green energy initiatives, Steve Malkin, ceo and founder of Planet Mark, said: "Pulling support for businesses at the dawn of a turbulent and uncertain 2023 could be highly disruptive for many of the SMEs that make up the backbone of our economy. Any reduction in support must therefore be paired with long term energy efficiency guidance and assistance so that Britain's businesses can continue to reduce their energy cost burdens, in addition to becoming greener and more competitive in the global market."
Written by Rachel Miller.