Buckle up, it’s going to get rough
This is also accompanied with in depth features on how much they will affect householders but so far there has been very little explanation on how these same increases will affect businesses.
For instance the domestic price cap that Ofgem is expected to raise in March only applies to domestic users. So while there will be a limit on what they can be charged for gas and electricity use, no such protection exists for companies who could face even more spiralling costs with no hard limit.
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One chief executive summed up a lot of businesses’ thoughts when they said: “The surge in energy prices is keeping me awake at night.
“It isn’t a case of changing suppliers to save money or reducing what we are doing, it is simply an inescapable truth that prices will rise dramatically so we’ll need to save money elsewhere to cover the basics of energy usage.”
Lucinda O’Reilly, director of The International Trade Consultancy, said: “The rate at which energy prices are rising is going to have a disastrous impact on British manufacturers who already pay much higher prices than competitors in Europe and the rest of the world.”
Martin McTague, the Federation of Small Business’ National Vice Chair, said: “The Government and Ofgem need to understand that microbusinesses face many of the same challenges as consumers when it comes to negotiating energy deals but without the same protections.
“While big corporations can use their sizable purchasing power and large headcounts to secure favourable terms. Small business owners don’t enjoy that luxury.
“As things stand, you have the smallest businesses being hit by surging fees but with no price cap, no protection of credit balances and no support from the Redress Fund for households impacted by supplier failure to fall back on.
“That’s on top of all the other pressures facing firms, not least continuing consumer Covid anxiety, widespread isolation of staff and spiralling inflation in the round.
The Federation of Small Business has been raising the alarm for some time and reports similar pressures in its latest quarterly survey of its members.
It found that 45% of respondents said that their overall costs had increased in the past three months because of rising utility bills driven by the price of energy.
Craig Beaumont, head of external affairs of the FSB, said: “The picture we’re seeing is that unplanned-for-bill increases are hitting firms when they’re already up against other major headwinds – supply chain disruption, inflation heading for 6%, increasing late payment from large business customers and the biggest tax increase in small business history coming in April this year.”
Many will also be handling bounce back loan repayments, VAT arrears and rising business rates in their local areas too.
Business energy use is different from domestic.
Some are more energy intensive than others. An average office would use more electricity over the course of a week than an average family home and a bakers or launderette would use a lot more energy than the office for example.
This is why fixed price energy contracts are more prevalent for businesses from between one to three years.
Once these come to an end then most will be facing a huge increase no matter what tariff is available to them.
The domestic price cap is adjusted twice a year in October and April meaning that many of the steepest rises in wholesale gas and electricity prices in the past few months will not hit bill payers until Spring, when bills tend to decline as heating demands reduce.
Similarly a large number of companies’ deals will come to an end on April 1st which will be the first crunch point as businesses fall off low fixed contract prices and go onto high renewal rates.
There are ways to protect your business – starting with getting some advice
Chris Horner, Insolvency Director with BusinessRescueExpert said: “Many businesses will find themselves in the worst possible position at the worst possible time in March and April.
“Their fixed deals will be coming to an end and the marketplace itself is shrinking disproportionately with 26 suppliers failing and disappearing in the previous six months.
“Many will be pursuing a mixture of alternative strategies like reducing planned investment or recruitment while looking to increase their own energy resilience through solar panels, heat pumps or even wind power if their premises allow it.
“But before they look at more drastic solutions, they should use the time available to get some professional advice and take measures now so they will be more resilient to price shocks when they arrive.”
Which sounds like good advice to us.
We offer a free consultation to any director or owner of any size business where they can discuss their concerns and genuine problems with one of our experienced, expert advisors.
Once they get a full and complete picture of the company’s situation they will be able to review all the options available – often with more scope for action than they might originally think was possible.
This year is going to be difficult for a lot of businesses and like the past couple of years, through no real fault of their own.
Covid-19 disrupted 2020 and 2021 and while 2022 could be blown off course by any of a range of threats, preparing your defences now is definitely more effective than worrying.