Thousands of small UK companies ‘at risk’ due to cut in energy subsidies

Almost one in four of the UK’s small companies could be forced to close, downsize or restructure their operations after the government slashed subsidies for companies’ energy bills, a business lobby group warned on Tuesday.

The Federation of Small Businesses (FSB) estimated many small companies will get as little as £50 in future government support, which it said would leave businesses without essential financial help should energy prices rise further or remain high.

The government on Monday sharply cut the subsidies available to businesses from April, after introducing support last October in response to surging energy prices following Russia’s invasion of Ukraine.

The total cost of a new 12-month subsidy scheme for companies — which includes more generous support for businesses classified as energy-intensive users — was put at £5.5bn. That compares to the estimated £18bn cost of the current six-month government subsidy regime.

A move to curb support would mean tens of thousands of companies were now at risk, said the FSB.

It added its research indicated that almost one in four small businesses had planned to close, downsize or restructure if support came to an end in March this year.

The federation said that with government subsidies falling to “totally insignificant” levels under the new scheme, this could have a similar outcome to having no support at all.

Martin McTague, national chair of the FSB, said “many small firms will not be able to survive on the pennies provided through the new version of the scheme”.

Some small businesses said the reduced government support would hit their profits this year.

Keith Stephenson, group finance director at Total Construction Supplies in Wolverhampton, said that “as a manufacturer who uses significant amounts of electricity” the new scheme would result “in a sharp increase in production costs, which will affect profits”.

Some sectors complained they would be excluded from the government’s definition of energy-intensive users, and so miss out on extra support.

Stephen Morley, president of the Confederation of British Metalforming, a trade body for manufacturers, said some “heavy energy users do not qualify for both the current and future schemes . . . because the current formula used to categorise an energy-intensive industry is based on high electricity costs and doesn’t reflect the fact that many manufacturers use more gas”.

But the government said it was unsustainable to provide support at current levels indefinitely.

Business secretary Grant Shapps told Times Radio on Tuesday that “the question is, if you want to go beyond £5.5bn, whose taxes will rise in order to pay for that? And the answer is everybody’s”.

Under the new scheme, the government is replacing a cap on the wholesale price of energy for companies with discounts on their electricity and gas bills.

These discounts have been set at £19.61 per megawatt hour for electricity and £6.97 per MWh for gas, when wholesale prices are above £302 per MWh and £107/MWh respectively.

Wholesale prices have fallen sharply in recent weeks but are roughly four times higher compared to the average over the previous decade.

The BEIS said on Tuesday evening they were providing business and other non-domestic energy users with an unprecedented £18bn package of support this winter.

“On top of this, we have pledged to continue energy support from April onwards through our Energy Bills Discount Scheme. This will be at a lower rate to reflect recent price trends and to reduce taxpayer exposure to volatile energy markets. A higher level of support will be provided to energy and trade intensive businesses.”