The nightmare before winter: Under the micro-scope

With many microbusiness energy customers feeling “overlooked, and misunderstood” when it comes to financial support from government, Valda Energy boss Steve James writes for Utility Week about the impact the cost of living crisis is having on these consumers.

As the colder months now fast approach, UK microbusinesses across the country are bracing themselves for what seems to be a re-occurring nightmare: the increasing burden of energy costs.

While escalating prices have been a major concern for organisations of all shapes and sizes over the last few years, it’s microbusinesses – defined as those with fewer than ten employees – that have felt the pinch more acutely due to factors such as higher operating costs, tighter cash flow and smaller output volumes compared with bigger organisations.

This year is no different, the combination of rising energy prices and a fragile economy is no doubt set to create another perfect storm of financial strain for microbusiness owners right across the UK. And, with 5.2 million of them in the UK having a combined turnover of £808 billion, this ‘forgotten sector’ is a major contributor to the nation’s economy. Yet many of these businesses operate away from the spotlight of support, or even without a voice.

We recently surveyed more than 500 microbusinesses across the country to understand their pain points when it comes to energy prices and the feedback was clear – an overriding feeling of needing action and greater support.

From small manufacturing units to independent retail outlets, they rely heavily on energy-intensive processes and with heating, lighting and power being non-negotiable expenses, bills need to be paid.

Many said that they have been, and continue to feel, overlooked, and misunderstood when it comes to the right financial support from government and do not feel that their needs are understood.

And, over half of those questioned believe that they have been neglected in favour of hand-outs to consumers and larger businesses – they are calling for more tailored help, such as a regular winter support scheme. Without additional support, one in five surveyed said they feared closure over the next 6 to 12 months.

It’s clear from this feedback that Microbusinesses have for too long faced unfavourable energy payment options. As escalating prices began to bite following the outbreak of war in Ukraine, microbusinesses received little support until the introduction of the eagerly awaited Energy Bill Relief Scheme (EBRS).

However, this critical lifeline ended abruptly in March of this year and was replaced by the Energy Bill Discount Scheme, which falls way short of the support needed by many businesses struggling to cope with their high energy bills.

What has compounded the challenge for microbusinesses is that many were in fixed contracts that expired at the peak of the crisis. This left them with little choice but to sign new contracts at significantly higher rates, meaning these businesses are now being supplied under long-term agreements that are likely to be substantially more expensive than current energy prices.

Unlike domestic contracts that can be on a more short-term basis, business contracts are often for longer periods of 12 months of more.

This situation leaves many businesses grappling with the burden of potentially unaffordable contracts, and finding that “blend and extend” solutions offered by their energy supplier are still not fixing the problem.

Added to this, business customers facing energy debt have less protection compared to domestic customers.

The knock-on effect of the removal of the EBRS has been severe and wide ranging. It’s forced many microbusinesses to make a choice between paying themselves a wage or paying their energy bills; reducing their operations or worse case completely closing operations.

As we approach the Autumn statement later in November, we are urging the Chancellor to reconsider and reinstate a similar scheme to help support micro businesses over the coming months. Escalating energy prices coupled with economic headwinds makes for a bleak winter ahead.

Providing the right help might not cost the government any more money than it has already pledged, and one obvious helpline would be to see the underspend on the EBRS scheme – now expected to be in the region of £11 billion – go towards helping businesses in high-rate fixed term contracts. Certainly, it’s an idea that more than 82% of the microbusiness owners we spoke to were in favour of.