Too little, too soon:
Energy Bills Discount Scheme puts thousands of small businesses at risk
Small businesses have been operating under severe financial pressure for some time. The impacts of Covid-19 and the cost-of-living crisis have been driving up costs since 2020, with no end in sight.
Despite continuing hardship, the Government has announced a new support for non-domestic energy customers — the Energy Bills Discount Scheme (EBDS).
The scheme is a cut-back version of its predecessor, under which a fixed amount of money is discounted once energy prices reach a specific level. In addition to this, the cap at which the Government steps in to cover costs has been removed. This means that there is no longer a limit as to how high energy prices can go for non-domestic customers.
This news will only heighten worries for small business owners. The Federation of Small Businesses (FSB) had found that 96% of small companies were already concerned about energy costs in September. Now, new research shows that 1 in 4 are worried about staying afloat if energy costs go up again. With recent calculations suggesting that many businesses will receive as little as £50 in support from the scheme, it’s not hard to see why.
Devil in the detail
Many aspects of the EBDS provide certainty. It’s long — with 12 months of guaranteed support, and it does provide more support to customers who are especially vulnerable to higher prices.
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However, the finer details of the scheme have sparked concern. Many customers have found themselves excluded from more support despite being high energy users. In addition, the proposed price at which the discount would begin is much higher than the current price cap which is set to be removed. This means that many small businesses will see an instant increase in costs, especially if they are not already locked into a fixed contract.
It is also important to consider that the lowest threshold at which the discount begins is still much higher than pre-pandemic prices. Compared to previous years, businesses are still facing unprecedented costs just to cover basic needs. Small businesses are more likely to struggle under these conditions. They have lower turnovers and are much less likely to have money put aside to cover these extreme costs. It’s clear that if support is withdrawn in April many businesses will be pushed towards a point of no return.
What’s the alternative?
In its current form, the implementation of the Energy Bills Discount Scheme is unlikely to come without casualties. But in the context of empty high streets and warnings of mass business failures, there is absolutely room for reconsideration.
This is especially true considering that small businesses might not need this kind of intensive support for much longer. Although energy prices are set to remain high for at least the next year, longer term price modelling is more optimistic. Energy analysts Cornwall Insight have predicted a significant decline in power prices over the next decade. It is unlikely that prices will fall to pre-pandemic levels. But the lowered prices will be much more manageable to small businesses, meaning that they will need less support. With a few months of further help, there’s a good chance that many firms will make it through this crisis and beyond.
Under the EBDS, the smallest businesses risk losing out on meaningful support. However, as suggested above, the pressures they face are heavy but temporary. Citizens Advice recommends that current support levels are extended to those in need. Meanwhile more work should be done to understand what will be required in the weeks and months ahead to keep small businesses open. Points of review should also be built into the EBDS. This will ensure it can pivot to provide more support if economic circumstances take a downturn.
To further build the resilience of the sector, Government and Ofgem should also consider what other support is available. Currently, debt collection and disconnection activities vary hugely across the market. Small business owners are often forced to repay debt at unreasonable rates or face disconnection. These practices often force the business to close, making it much harder for them to pay off their debt. Making debt collection practices fairer will help keep struggling businesses afloat, and reduce the wider impact on the sector.
The Government is at a turning point. If FSB’s warnings are correct, taking away support now could harm thousands of businesses and cause damage to the economy. If energy prices really are due to decline, then the Government should consider extending support in its current form. This will help companies out of the danger period and prevent a potential shockwave of insolvencies.
