Is the UK facing a ‘cost of doing business’ crisis?

Soaring energy bills are fuelling a “cost of doing business crisis” that may force countless British companies into liquidation, ministers and lobbyists are warning.

Companies are not covered by Ofgem’s energy price cap, instead negotiating bespoke fixed-term contracts with suppliers. And with many of those contracts expiring this year, “the majority of UK companies are due to renegotiate their electricity and gas contracts in October”, the Financial Times (FT) reported.

Paul Wilson, policy director at the Federation of Small Businesses, told the paper that “winter could spell the end for many businesses and they need help now”.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Fourfold increases

Latest 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”, said the FT.

Calls for urgent action to help mitigate the price hikes pile further pressure on Tory leadership hopefuls Liz Truss and Rishi Sunak to explain their plans to support businesses.

The British Chambers of Commerce has proposed a five-point plan to help its members. The plan includes giving watchdog Ofgem “further powers to strengthen regulation of the energy market for businesses”.

In a letter to the government and the two leadership candidates, the lobby group also called for a temporarily reversal of the planned rise in National Insurance contributions; a temporary cut in VAT to 5%; and expansion of overseas work visas to ease the labour shortage crisis.

British businesses are already struggling to stay afloat. Latest official data shows that 1,800 companies in England and Wales registered for insolvency last month, up by 27% from July 2019, before the pandemic struck.

Chancellor Nadhim Zahawi has reportedly asked Treasury officials to produce recommendations for Boris Johnson’s successor on how the state could help companies. The options are expected to include offering grants to small companies; business rate holidays; temporary exemptions from VAT; and the recrafting of Covid-19 loan schemes.

‘Going to be a bloodbath’

Businesses owners are warning that their companies are “in jeopardy” because of energy price rises, the FT reported.

“I’m more concerned for my business over the next 12 to 18 months than I was during the pandemic,” Gareth Fulford, who runs a restaurant in Cheltenham, told the paper. “It’s going to be a bloodbath unless there’s government help.”

The devastation is expected to hit businesses all over the UK. The latest business confidence monitor for Scotland by the Institute of Chartered Accountants “found sentiment to be in negative territory, with only Wales recording a lower reading”, reported The Scotsman. Scottish firms told the accountancy network that they were struggling to cope with tax, labour market and transport issues, as well regulatory requirements and soaring inflation.

A UK 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.”