Over 1 Million UK Small Businesses Locked into High-Cost Energy Tariffs

Over 1 million small UK businesses are trapped in high-cost energy tariffs, risking their competitiveness and profitability.

More than 1 million small businesses in the UK may be paying higher energy bills than market rates after being locked into long-term contracts that were fixed when prices reached an all-time high in 2022.

Trade groups representing businesses from metalworkers to convenience stores have joined forces to warn of the situation, calling on ministers to force suppliers to renegotiate unaffordable energy deals or risk thousands of insolvencies that would affect jobs and the UK economy.

According to surveys from the British Chamber of Commerce and the Federation of Small Businesses:

• Around a quarter of the UK's 5.5 million small businesses - over 1 million companies - may have been forced to renew their long-term energy supply contracts at the peak of the market, including through coercion or mis-selling.
• Many small firms struggled to find an energy deal because suppliers either refused to supply small businesses or demanded large financial deposits.

Since then, market prices have fallen, and on 1 April, the government cut its financial support for business.

• Companies are still locked into long-term contracts that will force them to pay inflated prices based on last year's peak for months or even years to come.

The Confederation of British Metalformers (CBM) has written a letter warning that small manufacturers face a "perilous situation" due to escalating energy bills. The letter, seen by The Guardian, described the situation as the "biggest mis-selling scandal since PPI." Stephen Morley, the president of the CBM, said that energy suppliers and brokers were making "huge profits at the expense of UK competitiveness," which could lead to "another nail in the coffin of the British manufacturing sector."

The warning comes just weeks after the energy regulator, Ofgem, expressed concerns about the behaviour of some energy brokers and suppliers in relation to business energy customers. Ofgem stated that companies were facing energy bills that were "higher than is explained by market conditions," and in many cases had been forced to pay much higher deposits and standing charges.

Morley said that a number of small manufacturers in the West Midlands had already closed down since the government ended its original support scheme at the end of March, after just six months. Small manufacturers, who have high energy use, are some of the worst affected. The collapse of these firms, which make components used by larger manufacturers, could have consequences for the UK's supply chains.

According to the British Chambers of Commerce (BCC), over a quarter of the UK's small businesses signed new energy contracts when prices were at their peak at the end of last summer. About 60% of them said they would face difficulties paying after March 2023. Many were encouraged by the government to sign up to fixed price deals rather than tracker arrangements, meaning they were locked into high prices.

A separate survey by the Federation of Small Businesses (FSB) found that 24% of small businesses were on fixed deals, and 320,000 may struggle to pay their bills. Tina McKenzie, the FSB's policy chair, said that firms should be allowed to "blend and extend" their existing energy rates with rates that reflect lower market prices to give them "a fighting chance."

Chris Noice, a spokesman for the Association of Convenience Stores, said that thousands of members were dealing with the short-term pain of fixed contracts that were signed in the second half of 2022, at the height of wholesale prices. In the absence of "meaningful" government support, ministers should "help them off these huge fixed contracts as soon as possible and on to something that better reflects the current wholesale market," he said. The government had advised retailers and other businesses to opt for fixed-price contracts, as the Energy Bill Relief Scheme would offer more protection to those on fixed rates.

 

If you need help with renewing your business energy contract, we can help you find the best deal available by comparing supplier prices. Get in touch today.

 

Article by The Guardian