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Businesses energy support slashed: Industry leaders warn small firms could go bust

Thousands of small businesses risk going bust as the government slashes energy support, according to industry figures.

On Monday, Chancellor Jeremy Hunt announced a new discount scheme for businesses which will run until 31 March 2024.

Currently the taxpayer is subsidising energy bills at a cost of £18billion, by capping the price of gas and electricity at £75 and £211 per megawatt hour respectively until the end of March.

Shutting up shop: Industry figures warn plenty of small businesses will face closure once energy support comes to an end

From 1 April 2023, businesses will see a unit discount of up to £6.97 per megawatt hour for gas, and up to £19.61/MWh applied to their electricity bill.

A typical pub can expect a discount of up to £2,300 over 12 months, and a small shop can expect up to £400 off their annual energy bill, the Government said.

More support will be provided to businesses with higher levels of energy use and trade intensity, including steel, ceramics and food manufacturing.

However, industry leaders have hit back at the flat rate per unit discount, which is six times less generous than the help in place today, warning it won’t be enough to stem the tide of businesses going bust.

Martin McTague, chair of the Federation of Small Businesses said the new scheme was a ‘huge disappointment’.

‘While the New Year should be a time of optimism and excitement, 2023 looks like the beginning of the end for tens of thousands of small businesses, which have been relying on the government energy support to survive this winter,’ he said.

‘What’s certain from this catastrophic move is there’ll be a cliff edge after March. 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.’

While wholesale gas prices have started to fall in recent weeks, they remain at elevated levels and many businesses signed fixed contracts when prices were higher.

FSB research reveals a quarter of small businesses anticipate having to close, downsize or change their business model once the energy cap ends in March.

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McTague added: ‘For those struggling, the discount through the new version of the scheme is not material. Many small firms will not be able to survive on the pennies provided through the new version of the scheme.

small business

‘This is so out of touch. Two pence off a kWh off electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer. The Government will inevitably have to come back.’

Sacha Lord, night time economy advisor for Greater Manchester, tweeted the announcement was the ‘final nail in the coffin for many’.

UK Hospitality estimates that the new scheme will cost the sector at least £4.5billion over the next 12 months.

The trade body’s boss Kate Nicholls urged Hunt to consider other measures to help the sector, including an increase in the business rates relief cap.

New scheme ‘risks stoking inflation’

Industry figures have also warned of the impact on the wider economy if small businesses are left to fend for themselves.

The director of the British Chambers of Commerce, Shevaun Haviland, said: ‘We understand Government must consider public finances, but any support package, short or long term, should be right for business – otherwise we’re going around in circles.

‘It is a critical year for the UK economy and with the right focussed support, businesses can help turn the economy around and get the UK back to growth and prosperity.’

McTague said the sudden drop off in support risked stoking inflation as small businesses bills rise and they are forced to hike their prices.

He added: ‘The EBRS original scheme suppressed inflation by 5 percentage points, but this has been cancelled… Slashing support will drive higher inflation, just as we enter a recession.’

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