The survival of many SMEs will depend on continued government support through Energy Bill Relief Scheme (EBRS) beyond March, reveals a new energy survey by the Federation of Small Businesses (FSB).
The survey, which measured the impact of the energy price crisis on small businesses, shows how small firms are awaiting clarity on whether they will still be eligible for support next year following the government’s six-month review.
FSB says it has submitted the findings to the Department for Business, Energy and Industrial Strategy (BEIS).
Plans on hold
A quarter of small firms (24 per cent) polled said they plan to close, downsize, or radically change their business model if the government reduces energy support after March next year.
This includes 42 per cent of firms in the accommodation and food sector, 34 per cent in wholesale and retail and 29 per cent in manufacturing.
More than four in ten small firms (44 per cent) are considering raising prices to cope with soaring bills when the current EBRS is due to end while a third (30 per cent) expect to cancel or scale down planned investments.
One in five (18 per cent) said they would need to keep prices the same, however, because their customers cannot afford further increases.
Increasing energy bills
The majority of those surveyed (63 per cent) say their energy costs have increased this year compared to 2021. Some 44 per cent report a double, triple or even higher increase in their energy bills, and nearly one in five (19 per cent) say their bills had tripled or higher.
In response to the bills, nearly half of small firms (46 per cent) have already raised prices, although it has been impossible to pass on full costs to consumers who are tightening their belts amid the cost of living rises.
In light of the findings, FSB says the government should continue the current EBRS after March 2023; consider the size, not just sector or geography, of firms when determining which businesses are vulnerable, and therefore entitled for further support; maximise planning certainty over the long-term so that small businesses can plan ahead; and help small businesses invest in energy efficiency through incentives such as voucher schemes.
FSB national chair Martin McTague comments: “Our research indicates that small firms are being held back from investment and are at the brink of collapse because of sky-rocketing energy costs. It’d be a real shame and great loss to our economy if those who managed to get through the pandemic and this tough winter with government support end up closing their businesses because relief ends too sharply in April.
“Latest OECD forecasts suggest the UK economy will suffer the biggest hit from energy crisis among G7 nations. But the tides can be turned if the government extends the period of energy support to struggling small businesses after the EBRS ends in April next year.
“It’s important that the government provides certainty to small firms for the long-term as they can’t plan on a six-month horizon.
“Business size must be taken into account as a relevant factor in the government review of the EBRS, given the stark impact on small firms which have typically lower margins and are least able to deal with the rising costs. It can’t be a purely sector-based decision, otherwise it’ll lead to deadweight and unfairness.”