Businesses which locked into costly years-long energy contracts last summer as the Government promised to shield them from the high energy costs are being left with a support package from April which will not do “much at all”, MPs have been told.
Trade bodies UKHospitality and the Federation of Small Businesses (FSB) told the Business, Energy and Industrial Strategy Committee that their members have signed contracts that force them to pay much more for their energy than it is currently trading for on markets.
They signed up last summer when the Government revealed that it would cap energy bills for businesses.
But that support is set to be lifted and replaced with a much less generous package from the start of April, leaving companies facing a “cliff edge”.
“Around three-quarters of our members were renewing energy contracts ahead of October. They were having to pay very high security deposits in order to just secure a contract,” said UKHospitality chief executive Kate Nicholls.
“So you’ve got lots of businesses that are locked in at very high rates.”
We’re quite worried about that cliff edge— FSB national vice chair Tina McKenzie
She said that some of her members are facing price increases of 150% to 200% and the average energy bill for UKHospitality members will jump 85%.
She added that the current level of support has been vital to get businesses through a moment of crisis.
“The scheme that was put in place undoubtedly saved many thousands of jobs and businesses in our sector that would have otherwise gone to the wall because of the situation we faced with energy,” she said.
FSB national vice chair Tina McKenzie said: “It’s absolutely pitiful, and we were clear about that to Government. Unfortunately a lot of businesses tied into fixed prices over August and September last year.
“So they were tying into prices usually around 75-80p.
“Which if you had the fixed support from the Government then it wasn’t an issue because the price per kilowatt (hour) was capped.
“Now that’s taken away and we have a few pennies over 30p that will be discounted, if you’re sitting in a contract that you can’t get out of for the next two years at 75-80p then quite quickly that couple of pennies over 30p on a discount isn’t really going to do much at all to help you.
“And that’s the point where a lot of businesses actually still haven’t even realised what’s about to hit them with those bills that are coming in April, May June, and we’re quite worried about that cliff edge.”
Stephen Phipson, the chief executive of Make UK, said that around 13% of British manufacturers are just breaking even at the moment and have no cash reserves, even with the current higher energy support.
He also said that the Government was basing its additional support for “energy-intensive” manufacturers on the companies’ standard industrial classification (SIC) codes that they have registered on Companies House.
This means that around one in 10 companies that Make UK believes are energy-intensive users will not be able to tap into the additional help.
