JANUARY is rarely billed as a month for optimism.
With Christmas and New Year over, the collective mood can darken as people wrestle with credit card bills, and consumer-facing businesses prepare for the quietest quarter of the year.
It is not for nothing Blue Monday falls in January – and this year there is cause to be even more pessimistic than usual. The UK is now widely regarded to be in recession and it could be protracted in nature; inflation remains sky-high, interest rates are at their highest level since before the financial crash and industrial action is endemic across the economy, as public sector workers fight for settlements they consider to be fair amid the current inflationary circumstances.
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One might think that this is not the time for the UK Government to cut much-needed support to shield businesses from the enormously high energy bills they are facing. Yet, little more than a week into the new year, that is precisely what Chancellor of the Exchequer Jeremy Hunt did on Monday.
Having already reduced support for households – the annual bill for a typical dual fuel household will rise to £3,000 from £2,500 in April – Mr Hunt this week scrapped the current energy support mechanism for business and replaced it with a new discount scheme. And the move will dramatically reduce the amount of support provided to business.
While the current support scheme, introduced by former prime minister Liz Truss in September, is estimated to cost £18 billion for the six months it will be in place, the new scheme is forecast to cost £5.5bn for the year it is in operation, from April 1, 2023 to March 31, 2024.
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Outlining the rationale behind the move to the new scheme, the UK Government declared that the support currently provided was “time-limited and intended as a bridge to allow businesses to adapt” amid the energy crisis, and that wholesale gas prices had returned to the levels they were at before Russia’s invasion of Ukraine. It said the new discount scheme would give businesses certainty while limiting taxpayers’ exposure to volatile energy markets.
But Andrew McRae, Scotland policy chairman of the Federation of Small Businesses, pointed out that replacing the current relief scheme with a discount on the unit costs of gas and electricity means “businesses are once more again at the mercy of the global events that drive those prices”.
Warning that the new discount scheme will amount to a “significant reduction” in support and have “real-world impacts”, Mr McRae added: “This creates more uncertainty. With a wholesale unit price cap, you can at least plan ahead. But with a mere discount on wholesale prices, many businesses will fear the next spike in energy costs and how high they might go. This will make it harder for firms to bid for fixed-price contracts, or to decide when, or if, they’ll open in the first half of the year.”
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With Mr Hunt stating that wholesale gas prices have receded to the level they were before the war in Ukraine, it is essential that this reduction is reflected in the bills businesses are charged.
Mr Hunt said he was “concerned” falling prices were not being passed on, and that he will write to Ofgem, the energy sector regulator, to ask whether “further action is needed to make sure the market is working for businesses.”
Kate Nicholls, chief executive of UKHospitality, said ensuring energy suppliers fulfil their side of the bargain is vital. “Now we have some clarity on the future of energy support, we must see a concerted change in behaviour by energy suppliers, who have been unfairly treating businesses with outlandish quotes and unjustifiable demands for enormous deposits or pre-payments,” she said. “Government must act swiftly if this is not forthcoming.
“This scheme is a significant investment from the Government and energy suppliers should not be using that as an excuse to hike up prices.”
The Treasury said the discount scheme will equate to a saving of £2,300 for an average pub and £400 for a small retail store. But while any form of financial support is likely to be welcomed by business owners as they negotiate the current economic challenges, the reality is that for some it will just not be enough.
Many businesses will have gone into the current cost crisis in a financially weak position, following the many challenges posed by the pandemic, and may simply not have the resources to weather the current storm. This will particularly be true for those struggling to service extra debts taken on to get through various lockdowns.
More and more businesses such as pubs and hotels are deciding to close their doors because it is no longer viable to trade, and it is feared the trend will only become more pronounced.
Highlighting the challenges posed by the continuing economic crisis, rail strikes and, in some areas, a lack of taxi provision, the managing director of the Scottish Licensed Trade Association, Colin Wilkinson, said: “We’re into the second week of January and these challenges remain. So, to hear that the current energy scheme is to be replaced with one that offers a discount on wholesale prices rather than a fixed cap price means that businesses will receive a vastly reduced level of support – understandably, we have very serious concerns about the impact this will have on the hospitality sector.
“Obviously we are grateful for any government support, but this new energy bills discount scheme does not, in our view, offer much hope for vulnerable sectors like hospitality when you consider that energy costs now account for around eight to 10% of turnover for an average pub or bar. Energy is the second-highest cost for hospitality venues.
“The cost of this scheme, at £5.5bn, is not insignificant but when you drill down into the detail, small businesses in particular will not be much better off. James Cartlidge, the Exchequer Secretary to the Treasury, said that discount would be the equivalent to a £2,300 saving for a pub and of course every little bit helps. But it’s not nearly enough.”
Chancellor Jeremy Hunt has frequently said difficult decisions will have to be made to tame inflation and get the UK economy back on track. But making life harder for firms that would be perfectly viable had it not been for factors outside their control would seem to be counter-productive to say least. The cost of maintaining energy support at the current level would have been a price worth paying if it meant more businesses would survive in the long run.
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