UK faces ‘cost of doing business’ crisis as energy bills rise fourfold

British companies face a “cost of doing business crisis”, ministers have been warned, with many commercial energy bills poised to rise more than fourfold this autumn.

The majority of UK companies are due to renegotiate their electricity and gas rates in October, the month fixed prices for businesses have been set since energy markets were privatised. Many companies have contracts that expire this year, according to energy brokers.

New estimates by consultancy Cornwall Insight show that businesses looking for a new contract this autumn will have to pay more than four times the price they paid for their electricity in 2020.

Paul Wilson, policy director at the Federation of Small Businesses (FSB), said the government needed to intervene to prevent thousands of companies from going to the wall.

“We don’t have the luxury of waiting any longer . . . winter could spell the end for many businesses and they need help now,” he said. “If we don’t address the cost of doing business crisis we’ll keep on seeing costs being passed on to hard-hit consumers, or even worse people will lose their jobs.”

The British Chambers of Commerce issued its own warning in a letter to the government and the two Conservative candidates in the race to become the next prime minister.

The lobby group proposed a five-point plan to help its members, including giving Ofgem, the energy regulator, more power over the market for businesses. It also wants the planned rise in the national insurance contributions reversed, a temporary cut in VAT to 5 per cent and expansion of overseas work visas to ease the labour shortage crisis.

“In June, we gave the government until the autumn budget to get its house in order, but the latest economic projections released since then have been worse than expected,” said Shevaun Haviland, BCC director-general.

The FSB also wants Ofgem to intervene and has called for an energy price cap for small businesses with 10 employees or fewer, similar to the one for households.

Households are braced for Ofgem to double the retail energy price cap to an estimated £3,600 from October. Without a corporate price cap companies are more exposed to the sharp jump in wholesale energy markets.

Cornwall Insights calculated that a business would have to pay £634 per megawatt hour for electricity this autumn, more than four times the price in 2020 and more than twice the price of last year.

Unlike domestic bills, electricity usually accounts for a much larger share of energy costs for small businesses than gas, according to the FSB. The trade body estimated that since February last year, a typical company in London with 30kWh annual consumption would expect its annual electricity bill to surge from just over £4,700 to more than £21,200. The cost of gas would have jumped from £1,350 to just under £7,050, a more than five-fold increase over the same period.

Haviland said the BCC plan was “about protecting jobs, securing livelihoods, and creating a vibrant and prosperous society for everyone.” Around 1,800 companies in England and Wales registered for insolvency in July, up 27 per cent on the same month in 2019 before the pandemic struck, according to the latest official data.

Gareth Fulford, who runs a restaurant employing eight staff in Cheltenham, said his business was “in jeopardy” because of energy price hikes. Energy costs had already made trading on slower days during the middle of the week unviable, he said. “I’m more concerned for my business over the next 12 to 18 months than I was during the pandemic. It’s going to be a bloodbath unless there’s government help.”

The government has so far only provided support for households with a £15bn package announced in May. But as wholesale prices have continued to rise, minister have been warned by energy suppliers much more help will be needed.

Liz Truss, frontrunner to become prime minister when the Conservative leadership race ends on September 5, initially expressed reluctance to provide “handouts” to help people deal with the cost of living crisis.

But at the weekend she acknowledged the difficulties facing businesses and said she would provide assistance “across the board”. Rishi Sunak, her rival, has said he would “look at all options” to help companies deal with rising energy bills, with small businesses likely to receive the most generous help.

Nadhim Zahawi, the current chancellor, has asked officials to draw up a list of options for the next prime minister and chancellor to help companies facing a sudden leap in bills.

Officials are expected to recommend options, including grants to small companies, business rate holidays and temporary exemptions from VAT and the recrafting of Covid-19 loan schemes to help companies deal with energy prices.

A government spokesperson said: “We understand that people are struggling with rising prices, and while we can’t shield everyone from the global challenges we face, we’re supporting British businesses to navigate the months ahead.”

Are we heading towards a global recession? Our economics editor Chris Giles and US economics editor Colby Smith discussed this and how different countries are likely to react in our latest IG Live. Watch it here.