Businesses will require additional support before they are ‘forced to close their doors’, says risk expert

Businesses across the UK face rapidly rising costs and the threat of closure if the government does not act to secure their affordable energy supply, risk experts have warned. 

Prime Minister Liz Truss introduced plans on 8 September 2022 to ensure UK households pay no more than an annual £2,500 for their energy bill across the next two years – starting from 1 October.

The new Energy Price Guarantee, which limits the price suppliers can charge customers for units of gas, aims to save the average household at least £1,000 a year based on current energy prices.

The government Office of Gas and Electricity Market (Ofgem) previously predicted that prices would increase to £3,549 per year for households receiving gas and electricity from the same supplier (26 August 2022).

A six-month scheme has been introduced that will offer equivalent support to that being provided to consumers for businesses and other non-domestic energy users.

After the initial six-months however, the UK government says it will provide ongoing support for “vulnerable industries” – a review in three months’ time will determine where this ongoing support will be targeted.

Atradius risk expert Owen Bassett highlighted that while the support package would “ease the worries of households across the UK, thousands of firms remain in the dark about how exactly they will cover their costs beyond this winter and into the next”.

‘Devil is in the detail’

Addressing the implementation of the equivalent guarantee for businesses, Basset said: “It’s not entirely clear what this means for the spectrum of different industries, particularly beyond the six-month mark.

“Organisations in more vulnerable positions will get additional support after this point, but it remains to be seen which sectors will fall into this bracket. Sectors that are highly reliant on energy – such as retail, manufacturing, metals and steel – will likely be candidates.

“The data already indicates a bleak picture with more than 5,600 company insolvencies registered last quarter – 13% higher than the first quarter of this year and 81% higher than Q2 2021. This is the highest failure rate in almost a decade.

“So far this year, 13,086 businesses have been made insolvent across England, Wales and Scotland – 87% more than last year. With many fixed-rate tariffs ending for businesses this October, the government needs to act fast and announce support before businesses are forced to close their doors, potentially putting thousands of jobs at risk.

“The devil is in the detail and we’re looking forward to seeing how the government will act to help businesses weather the storm over the coming months.”

In terms of using greener energy, property development company Moda Living director Dan Brooks said: “We welcome the Prime Minister’s measures to alleviate the immediate cost of energy pressures on people and businesses but urge her to follow through on her long-term commitment to an overhaul of the UK’s energy systems – particularly to driving progress in the renewable energy space.

“Inflated gas prices driving up costs across the country while the biggest players line their pockets with huge profits is outrageous and nonsensical.

“To resolve this issue for the long term we urgently need an accessible priced, renewable network of energy that protects the planet from damage and its people from hugely inflated energy costs.

“The UK government urgently needs to invest into the rapid development of UK-based renewables that will generate cheap power and energy security well into the future.”

Additional government action planned includes:

  • A new Energy Supply Taskforce – led by Madelain McTernan, who headed up the UK’s Vaccine Taskforce.
  • HM Treasury and the Bank of England announcing a new joint scheme to address liquidity requirements faced by energy firms operating in the UK wholesale gas and electricity markets.
  • New oil and gas licensing, which will be introduced as early as next week.
  • A lift on the moratorium on UK shale gas production.
  • New sources of energy supply being driven forward – including nuclear, wind and solar.
  • Reforms to the structure and regulation of the energy market through recommendations from a new review of the UK Energy Regulation.
  • A review to ensure net zero targets are met in 2050, given the altered economic landscape.