New chancellor Kwasi Kwarteng reveals energy support for businesses

The new chancellor, Kwasi Kwarteng, has announced more details on energy bill support for businesses. Wholesale energy prices will be capped for all organisations for six months from the 1st of October, with prices to be fixed at 21.1p per kilowatt hours (kWh) for electricity and 7.5p per KWh for gas.

This represents less than half the wholesale prices which had been expected this winter. A review will be published in three months’ time to identify ‘vulnerable’ organisations that will need further support after March 2023 such as hospitality and small businesses.

A promising plan?
The announcement was a relief for many as it ensures that retail and hospitality will not be forgotten this winter. But there are still some details yet to be clarified, and trade bodies are concerned as the expected hit to businesses could, in some cases, be catastrophic. 

According to Andrew Goodacre, CEO of the British Independent Retail Association (Bira), “It will be a relief to all independent retailers on the high street as they can now focus on the very important final quarter of the year. 

Emma Jones, founder of small business support platform Enterprise Nation, added, “We welcome this bold and unprecedented move by the government which we hope will help the small business community avoid a winter of discontent. 

“Small businesses and early-stage firms are being squeezed from all sides, and so this is overall very positive news. Small businesses have never experienced a price cap before, so we are on completely new territory here, but this crucially will help deliver the certainty we need to keep businesses going and stop them from closing down in the short term.”

In fact, in a survey conducted at the end of August to Bira members, 65% of business owners had said a price rise would force them to reduce the number of staff they had or reduce wages, while 40% were considering limiting opening hours, and 23% were looking to permanently or temporarily close their business once the proposed price hike came in October.

While the proposed plan is promising for indie retailers, Jan Robijns, owner of The Broadway Deli & Grocery, pointed out that businesses will still be paying extortionate costs for their energy. He explained, “If the electricity is indeed capped at the same level as domestic rates, it will still be a lot higher than many businesses are paying currently. Three times more than many currently pay.”

Six months isn’t long enough
Experts and businesses are also worried that the proposed help won’t last long enough, especially as it is set to be reviewed after just three months.

Andrew explained, “There is limited prospect of prices reducing in six months’ time, and so we cannot afford to see business rates increase in line with inflation just as this business support comes to an end.”

Rupert Evans, chairman of the Farm Retail Association and owner of Denstone Farm Shop, told Speciality Food, “Whilst we welcome the important announcement from for UK businesses, I am concerned that a six-month scheme wouldn’t be long enough.”

As Rod Addy, director general at the Provision Trade Federation explained, “The energy crisis will not cease any time soon, especially given Putin’s declared intentions to escalate Russia’s conflict with Ukraine. We would therefore press government to continue this support beyond six months to offer longer-term certainty to enable them to plan ahead more effectively, as well as looking to it to develop sustainable long-term energy security for the British food and drink industry.”

Ian Gadsby, managing director of business energy experts Ylem Energy, added, “The six-month guarantee does little to address the likely long-term increase in energy prices.The government is effectively sending a dangerous message to businesses, telling them they have six months’ protection. However, businesses will still be paying high prices on the cap – much more than historic levels.”

Minette Batters, president of the National Farmers Union, has also pointed out that the chancellor has failed to mention the food sector, and what support will be available for food businesses after the initial six-month period. 

She commented, “Energy plays a core role in the production of our food and throughout the food supply chain, from fertiliser production and heating glasshouses and livestock buildings to baking bread and keeping facilities clean. We simply can’t produce the food the nation needs without affordable energy.

“Because of this close link between energy and food, the government must prioritise access to affordable energy for food production and the food supply chain. Continued support will be key to curtailing food price inflation going forward and ensuring the provision of affordable, nutritious, climate-friendly food for the country.”

‘Vulnerable’ businesses
While the new announcement is reassuring for the majority of businesses, those deemed ‘vulnerable’ are still anxious about the coming months. 

“As Paul Askew, chef patron of The Art School in Liverpool, explained, “There’s a real risk there will be far less places for consumers to spend their money without further robust intervention, especially as we enter the critical fourth quarter of the year, where many hospitality businesses make a significant portion of their annual income.

“Last Christmas was derailed with the awful mixed messaging from the government around Covid, and huge revenue was lost. This simply cannot happen again. The hospitality industry cannot endure any more blows.”

For Andrew, “Our focus now turns to helping the government determine which businesses are vulnerable due the energy increases, as we feel indie retailers fall into this category.”

Hope on the horizon for indies
While the support still needs further clarification, particularly for indies and ‘vulnarable’ businesses, it will help to improve consumer confidence as we approach winter.

As Mark Kacary, managing director at Norfolk Deli, explained, “At the very least, this action might mean customers will start believing they can visit independent retailers, and that they can plan for Christmas without the fear that any money they have will disappear before they can use it.

“It does mean that from a business point of view we can be a little more hopeful that people will spend and with careful use of energy that we will get through to the other side wherever that might be.”

As Tom Newey, CEO of Cobbs Farm Shop, concluded, “What is very positive is the comfort consumers have been given and the hope that this should put more cash in their pockets, enabling them to perhaps spend more freely than they otherwise might have – that should directly benefit all us all.”