24% Of Small Businesses Might Close This Spring

29 November 2022 – Rising energy bills and the lack of certainty about what government support there will be after March 2023 could mean many small businesses might close this spring.

When Jeremy Hunt delivered his autumn budget on 17 November, small businesses were hoping to hear more about how they will be supported after the Energy Bill Relief Scheme for businesses ends in March 2023.

But they were disappointed, as the Chancellor did not give any more information about this scheme, leaving millions of small businesses uncertain how much they will have to pay for electricity and gas from next spring onwards.

According to research by the Federation of Small Businesses (FSB), 24% of small businesses think they will have to downsize, radically restructure their business or close this spring, if no further support with energy bills is forthcoming from the UK Government.

44% Of Small Businesses Have Seen Their Energy Costs Soar

The FSB has surveyed their members in November 2022 to assess the impact of rising energy prices on them and received 1,054 responses.

44% of the respondents have reported that their energy bills have doubled, tripled or risen more over the past 12 months. Only 19% of the surveyed businesses have had their energy bills increased by less than double.

23% did not see an increase, because their fixed energy contract was agreed on over a year ago and has not yet ended. But these fixed-rate contracts will soon come up for renewal, which means their energy bills are likely to increase soon.

To make up for the hike in costs due to rising energy costs, businesses have taken a wide range of measures. The overwhelming majority, 46%, had to raise their prices to mitigate the costs.

However, many small businesses were not able to pass on the full increase to their customers, as this would have made their prices higher than customers would have been prepared to pay.

The second most applied measure to combat rising costs was to scrap or scale down plans to invest or grow the business, with 32% of respondents ticking that box. While this is a sensible measure, it should be a red flag for the Government, as this will not help the UK economy to grow.

16% looked for ways to make their business more energy efficient or invested in ways to generate their own energy, for example by installing solar panels. 10% had to take the difficult decision to reduce their staff numbers by making staff redundant or freezing plans to hire new staff.

Another 10% had to temporarily or permanently close their business and 8% had to take on business debts. This is worrying, because it means that these businesses are unlikely to be able to survive if no further help with energy bills is offered this spring.

8% said that they had to postpone plans to invest in sustainable forms of energy and another 8% had to scrap or decrease their training budget.

Without Further Support Price Rises Are Inevitable

The FSB also asked their members what measures they would take, if no further support is forthcoming after March 2023.

The majority, with 44%, said they would raise prices further. However, 18% said they could not increase their prices further, as their customers would not be able to afford higher prices. This shows that without continued government support, many businesses can no longer be pofitable.

17% of respondents reported that they would recruit fewer new employees and 11% would have to make staff redundant to reduce their costs. 14% would have to reduce their training budget to cope with rising energy costs.

24% have said they would have to downsize, radically change their business model or close in spring, if they won’t be eligible for more support from the Government.

Of those, 42% are part of the accommodation and food services sector, showing how vulnerable this sector is. 34% belong to the wholesale and retail sector. Both these sectors were hugely impacted by the pandemic and are still trying to recover from it.

The manufacturing sector will also be affected, with 29% saying to downsize, change their business model or close this spring is their only option, if the support ended after March 2023.

Smaller Businesses Should Receive Further Support

While Jeremy Hunt did not mention the Energy Bill Relief Scheme for businesses in his autumn budget, he did announce in his earlier statement that after March 2023, only vulnerable businesses will get support.

A review will be conducted, which will establish which businesses will be classed as vulnerable and therefore get further support.

The FSB argues that the smallest UK businesses should be in this category as they are inherently more vulnerable than larger companies.

Larger businesses have more resources and expertise to negotiate better deals with energy companies. They are also able to hedge their energy costs, which will make them better equipped to deal with price hikes, which cannot be expected of small businesses.

The energy use of micro-businesses is also much more like that of a domestic customer rather than similar to a corporation.

Small businesses also don’t have the necessary cash reserves to absorb higher energy costs, which is why 24% of small businesses said they would have to downsize, radically change their business model or close this spring, if they don’t receive further support from the Government.

That’s why the FSB is calling on the Chancellor to take business size into account when deciding which businesses are classed as vulnerable. The business body argues that solely focussing on sectors would not be fair and leave many vulnerable businesses out in the rain.

Otherwise, a large part of the small business community will have no other choice than to downsize, change their business model or close this spring.

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The Business4Beginners news team consists of several writers who each have their own unique experience in businesses. By keeping their fingers on the pulse, they bring you the latest in news and trends impacting small UK businesses.
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