“Help for SMEs is needed now,” warns Federation of Small Businesses amid energy crisis

Photo by Towfiqu Barbhuiya
  • Written by Martin McTague, national chair at the Federation of Small Businesses

“Small businesses are left out in the cold when it comes to energy bills, with the vast majority excluded from the household energy price cap and other protections designed for domestic household consumers.

“Unlike large corporates, small firms cannot hedge costs and negotiate deals with their large energy suppliers. Many of our members say the eye-watering energy bills could be the final nail in the coffin as they struggle to get through winter.

“We don’t have the luxury to wait until the winter and inaction from our new Prime Minister could spell the end for many businesses. Plans for urgent intervention must be finalised and ready to go on day one for whoever wins the leadership contest on 5 September.

Martin McTague

“Imagine a small retailer has to come up with another £22,000 a year to keep the lights on when they are already wrestling with the jobs tax hike, rampant inflation and supply chain disruptions. And how is a fish and chip shop supposed to cope with a £52,000 increase in utility costs at the same time as their customers find themselves with less disposable income because of their own rising energy bills? Not to mention the independent laundrette considering calling time on the decades-long business after being told they need to pay £8,800 more a year for gas and electricity.

“We’ve also heard examples of big energy firms refusing to supply small businesses out of concern they could go bust, and some even ask for £10,000 upfront costs.

“Here are some of the feasible policy changes we’ve been pitching to the government…

  • Direct help for small businesses with bills. This could be done through the business rates system, accompanied by a discretionary pot of money to be issued by local authorities. It could alternatively be directly applied to energy bills.
  • Temporary reduction of taxes on energy. For example, the higher-threshold rate of VAT could be reduced from 20 per cent to 5 per cent. The lower threshold and domestic rate of VAT could be reduced from 5 per cent to 0 per cent. A VAT reduction should also help combat inflation.
  • Help to Green Vouchers should be introduced. Modelled on the Help to Grow Digital scheme, the government should introduce a voucher scheme to support businesses to decarbonise, with £5,000 vouchers that can be spent on environmental goods and services. This would help businesses reduce their need to buy energy from the grid, lower bills and improve energy security.
  • Extend the price cap to smallest businesses. The smallest businesses need consumer protections in the same way as individuals do. They are more akin to domestic customers when deciding on their energy provider, ranging from lack of expertise in purchasing energy to poor bargaining power. 

“More widely, cost pressures could be eased through a reversal in the recent national insurance hike. Increasing the threshold of small business rates relief to £25,000 would take 200,000 businesses out the rates system and help reduce overhead costs.

“The cost of doing business crisis underpins the cost of living crisis. Inaction won’t just lead to spiralling prices but to a generation of lost businesses, jobs and potential.”

Between February 2021 and August 2022, the Federation of Small Businesses (FSB) estimates that bills have risen by +349 per cent for electricity and +424 per cent for gas over the same period. This is based on an assumption of a 30,000 kWh annual consumption in London. For a business in that situation, it would imply that an electricity bill has increased from just over £4,700 to just over £21,200, and a gas bill has increased from just under £1,350 to just under £7,050 over the period in question.

The degree to which small business bills for electricity and gas have increased will depend on a range of factors, most importantly whether that business is signed up to a fixed price contract, and when they signed up to that contract. For businesses whose fixed price contracts have come to an end in recent months, the impacts are typically that the electricity or gas bill will have doubled, trebled or even increased by as much as four or five-fold.