Small UK companies fear ‘brutal’ year as ministers scale back energy subsidies

Small businesses have warned that UK government plans to slash energy subsidies will cause them acute pain, and claimed that mistreatment from energy suppliers has left them exposed to higher costs.

The government in January announced it would scale back its energy relief for business in 2023-24, leaving about 5.5mn small companies with reduced assistance in the face of soaring bills.

About one in four small businesses will have to close, downsize or restructure their operations owing to the cut in subsidies, according to the Federation of Small Businesses lobby group, while almost 30 per cent will only get a maximum of £49 in relief a year.

“I think we’re going backwards . . . it’s going to be brutal this year, especially for businesses,” said Bardan Pradhan, who owns The Village Greengrocers, an independent fruit and vegetable shop in Charlton, south London.

Pradhan is looking at airline tickets to “test the water” in Canada because his running costs are becoming unaffordable in the UK.

He claims his financial pressures have been aggravated by his former energy supplier, BES Utilities, after he was moved on to a variable rate without warning in August, leading to a fourfold increase in his bills.

Pradhan said his monthly bills jumped from about £450 to £2,200 in August, before rising to £7,600 a month later.

BES said that it “complied fully” with its licence obligations, “including issuing of statement of renewal terms when customers approach the end of their contracts”.

“At least 90 days before the end of the contract, our process includes providing customers with a written renewal reminder, as well as attempting to phone them with an invitation to renew their contract,” it said.

BES added that it had since made contact with Pradhan and believed it was close to resolving his complaint.

Rona Tait of TDS Commercial
Rona Tait of laundry TDS Commercial says the reduced support means she will have to push price increases through to her customers © Charlie Bibby/FT

The new energy bill relief scheme, set to cost £5.5bn, replaces the existing one introduced by the government in autumn to combat high energy costs in the wake of Russia’s invasion of Ukraine.

The reduced package will provide businesses with a flat rate per unit discount from April 1 for a 12-month period. Discounts of £19.61 per MWh for electricity — and £6.97 per MWh for gas — will be applied when prices are above a certain threshold.

For electricity and gas, the thresholds are £302 and £107 per MWh, respectively.

UK wholesale gas prices have already fallen below this threshold, but many small businesses were locked into fixed-cost contracts when prices spiked last year.

“The lower level of discount is going to be very negligible for my industry and not really going to make a difference . . . Creating a cliff edge is a false economy,” said Rona Tait, who runs laundry business, TDS Commercial.

Tait, who built her company from a small coin-op launderette, said the reduced support meant she would have to push price increases through to her customers.

Meanwhile, Linda Anderson, who owns the bakery The Kitchen Croxley in Hertfordshire, said the situation felt like “a bad dream”.

Her husband and co-worker, Ian Anderson, fitted their kitchen with ducting last year in order to pump hot air from the oven into the tea room to avoid turning the heating on. They said their energy bills had more than tripled since the autumn.

Other businesses on higher fixed-rate tariffs said they still had not seen support come through the existing scheme.

Linda Anderson, owner of bakery The Kitchen in Croxley
Linda Anderson, owner of bakery The Kitchen in Croxley, says the energy situation feels like ‘a bad dream’ © Charlie Bibby/FT

Tim Hassell, estates director at the Thurlestone Hotel in Devon, said his supplier British Gas had so far failed to apply his discount from the government relief scheme since renewing his contract in November.

“The scheme introduced by the government to save small businesses is being scuppered by the energy companies and something needs to be done,” Hassell said in an email to the trade body UKHospitality, seen by the Financial Times.

“We are sorry for the delay in applying the energy bill relief scheme discount,” said British Gas, which confirmed it would be reissuing new invoices that included the discount.

Other companies complained that they have been saddled with higher standing charges — a fixed daily rate which covered the costs of supplying fuel — as well as demands for upfront payments from their suppliers.

Stuart Race, who owns Suffolk wool store, The Woolpatch, said: “What frustrates me is I don’t understand why [the standing charge] would go from 27 pence [a day] and then now we’re in the energy crisis and paying 38 pence. Why should the . . . charge go up? I think it comes across as quite sneaky and underhand.”

Race’s energy supplier, Scottish Power, said the increased standing charge was due to changes in network charges and that the Woolpatch was on the best rate available at the point of renewal.

Ian Anderson of The Kitchen Croxley, who is an electrical engineer by trade, said he was confused when quoted standing charges that would more than triple the month before their existing contract was due to end.

Their supplier Eon declined to comment on the case for what it labelled data security reasons.

Meanwhile, Tait of TDS Commercial said she was quoted upfront payments of £16,000 from gas providers, including her previous supplier Gazprom which is now known as SEFE Energy, despite never missing a bill payment.

SEFE said: “We have implemented the government’s Energy Bill Relief Scheme for all eligible customers on our supply, including those on deemed and out of contract tariffs.”

It added: “As part of our new contract and renewal process, we continue to assess customers fairly and transparently.”

Back in Charlton, Pradhan said that relocating was “looking more likely” now that energy support was to be reduced.

“If the energy costs are still four times more, I’ll have to pack up and find another solution,” he said. “It’s sad, but also I’ve got a family to look after, I need to make sure the future is secure.”


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