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7 September 2022

How the energy crisis is devastating businesses

Energy bills for the average small business have quadrupled in the last 18 months.

By Katharine Swindells

During her opening days as Prime Minister, the top issue on Liz Truss’s agenda will be the energy crisis, which threatens to plunge two thirds of households into fuel poverty by January.

The latest reports suggest that Truss will announce a freeze on energy bills, capping the average household annual bill at around £2,500 a year, not the £3,549 cap announced by Ofgem last month. The freeze is an emergency measure that has been called for by the Labour Party and expert campaigners such as Martin Lewis.

Truss is also expected to announce measures to support businesses with spiralling energy costs, though the details of potential support are not yet known. Since the majority of businesses aren’t covered by the energy price cap, they are immediately exposed to the rising prices and have already been feeling the effects.

Analysis by the Federation of Small Businesses shows that the average small business has seen its energy bills reach over £28,000, more than four times the level in February 2021.

Red Flag Alert, a company that monitors insolvencies, says that, without intervention, the energy price rise will likely see the end of many businesses as they’re forced to choose between paying their bills and staff wages. This won’t just affect small businesses, but companies across the economy, which will have a devastating impact. Red Flag Alert calculates that of the 355,000 large companies designated as high-energy users, more than 20 per cent are at risk of insolvency because of energy prices.

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“If the government doesn’t provide financial support to businesses, many could be forced to lay off staff,” said Red Flag Alert's chief economist Nicola Headlam. “A rise in unemployment would put untold pressure on households and would be catastrophic for the economy.”

[See also: The UK is the second-most unequal G7 country]

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