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Energy Prices: Should Businesses be Worried?

Worried About Finances

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24th August 2022

Dexter Lawrence Written by Dexter Lawrence

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Soaring energy costs in the UK are causing panic for business and domestic customers alike. The energy price cap’s planned increase from 1st April will impact some 22 million domestic customers, who will see an increase of around £693 per year.

The price cap is updated twice per year, tracking wholesale energy prices and other costs. It is aimed at preventing energy companies from making excessive profits, so customers pay a fair price for their energy. Providers are permitted to pass on reasonable costs to customers, including increases in the wholesale price of gas.

The price cap was last updated in August 2021. It currently doesn’t reflect the unprecedented price increases in gas that have occurred since the most recent update.

Business energy tariff

The price increase is coming at a time when other expenses, such as National Insurance contributions and food bills, are also rising.

With business energy, fixed-price contracts are commonly in place for up to three years, but when this period ends, most companies will face rocketing fees, whatever tariff they choose. The increases will be damaging for a lot of small and medium-sized enterprises, who are still trying to deal with a glut of post-Brexit red tape.

For businesses that rely heavily on energy, such as production companies, or home-based small businesses and start-ups, entrepreneurs say it could have disastrous consequences. Many fear they won’t be able to afford the price hike and it may even lead to some companies folding.

Suppliers go bust

Some businesses have already been left reeling after their energy suppliers have gone bust, so they have had to move to other suppliers. There have been reports of small businesses who have made the switch being told to increase their direct debit by £90 per month. This is a hefty £1,080 per year that will have to be added to overheads. With no better options available through changing suppliers, businesses are now considering ways of making savings elsewhere to cover the higher energy prices.

While some larger companies are converting to sustainable energy sources, such as air source heat pumps and solar panels, most SMEs don’t have enough money to pay for the changes, even though it would save them a fair bit in the long term.

Call for government help

Trade bodies are calling on the government to do more to help struggling small businesses, such as expanding more consumer protections to microbusinesses. There are also calls for the introduction of a “Help to Green” scheme, providing extra funding for firms to invest in technology that would make them self-sufficient energy-wise.

With wholesale prices of gas quadrupling over the past year, Martin Lewis, of Money Saving Expert, has warned there might be worse to come later this year. The next energy price cap review is due in October 2022, and he fears it may rise by another 20% if the wholesale gas prices continue to climb.

Hire an accountant

If you’re a business owner who is concerned about rising energy prices and other costs, a professional accountant can help by advising on where you can cut back on other areas within the business.

Our professional team at DL Accounts offers a wide range of services to help take the strain out of running your business. Please contact us to arrange a free first consultation, when we will discuss your accounting needs and provide a no-obligation quote.