Thousands of small businesses will close if Government support for soaring energy costs is not extended past April, new research suggests.
The study by the Federation of Small Businesses found that a quarter of companies plan to close, downsize, or radically change their business model if the support is reduced in Spring next year. North East entrepreneur Martin McTague, chair of the national organisation that represents thousands of firms, called on the Government to extend the Energy Bill Relief Scheme (EBRS) beyond the end of March 2023 to avoid mass closures.
The findings have been presented to the Department for Business, Energy & Industrial Strategy and show firms in the accommodation and food sector would be particularly impacted (42%), followed by the wholesale and retail (34%), and manufacturing sectors (29%).
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In the face of steep energy prices, the FSB found nearly half of firms surveyed had already raised prices, though they had not necessarily been able to pass those costs on to customers thanks to the cost of living challenges. The research pointed to 44% considering price rises to cope with the overheads when the EBRS closes and 30% expect to cancel or scale down investment.
Mr McTague said: "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 provide certainty to small firms for the long-term as they can’t plan on a six-month horizon."
He added: "To allow well-run businesses to go under would be a false economy as we enter a recession. 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."
The survey has been released as separate research showed mounting evidence of the UK economy being in recession.
The preliminary data from the so-called flash purchasing managers index survey indicates the country is in the middle of the steepest economic decline in nearly 14 years, experts said. The survey, compiled by S&P Global and Chartered Institute of Procurement & Supply (CIPS), showed a reading of 48.3 in November. It is slightly better than the 21-month low seen in October, 48.2, but still shows the economy is declining.
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