The pub owner had tears in her eyes. Her energy costs have gone up three-fold over the last year and, if costs keep rising as feared, she has no idea how the bills will be paid this autumn.
Her pub has already taken a battering from the on-off Covid lockdown during which the proprietor – she prefers to be anonymous, so let’s call her Beth – dug deep into her savings to keep the business afloat. Like so many small business owners, she was eligible for only the tiniest of grants from the furlough scheme.
But now Beth fears that her pretty pub – tucked away in a small village on the North Norfolk coast which we discovered on holiday last week – might have to close if prices don’t come down or if she doesn’t get external support.
There are hundreds of thousands of small businessmen and women like Beth who are suffering from rocketing energy bills which, unlike those for consumers, are uncapped and at variable prices.
And, unlike consumers, SMEs have not been offered a penny in support from any of the myriad of existing government proposals or indeed, any of the half-baked plans being touted by the two contenders to be the next PM.
In nearby Fakenham, David Holliday, owner of the Moon Gazer microbrewery, tells me the energy costs of running his brewery have soared over the last year by £23,000 to £40,000. Yes, by £23,000 – in one year. Which is, as he sadly points out, the equivalent to the salary of part-time staff or another employee who he can’t now employ.
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Unlike consumers, small businesses have not had the luxury of having an energy cap on their supplies, so have been entirely vulnerable to either variable rates or contracts with providers. Now even those agreements are being cut back, says Halliday, with most suppliers refusing to offer business customers either one or two-year contracts which used to be the norm.
What’s more, smaller businesses have to pay whatever the variable rate might be at the end of the month without knowing the price they are being charged. Do you know any other market where you only know the price of what you are paying after you have bought the product or service?
Halliday tells of another local brewer who has just been quoted 58p per unit of electricity compared to 28p. His colleague is now considering closing his brewery in January and February because of the hike in costs, making it almost impossible for him to plan the next season of brewing.
So what can small owners like Holliday, and his brewer colleague, do to protect their businesses and survive this energy crisis? Cutting down on power or cutting costs elsewhere is not an option for Moon Gazer.
Holliday already runs his brewery specialising in exotic brews like StubbleStag, named after wild hares transfixed by the moon, on a super-efficient basis, optimising every thread of the business. It helps that the brewery is based in the heart of the finest malting barley region in the country, and that the water comes from local wells.
What he can’t cut down on is energy: plentiful gas supplies are critical as the beer has to be boiled at high temperatures before it is fermented and then chilled at extremely cold temperatures afterwards.
Nor is putting up the price of a pint a realistic choice. “There’s a tipping point for even a pint of our best ale like the Moon Gazer which sells for around £4.40 now. To cover costs it would have to go up to £7 or £8 but we can’t do that as we’ll lose our customers.”
Small manufacturers are particularly vulnerable to crippling sky-high energy costs. Robin Brown owns Yorkin Associates, makers of plastic access chambers for utility companies made from recycled materials. Brown estimates his energy bills will rise from £36,000 per annum to £108,000 this year and there is little he can do to mitigate costs. In his industry, he can’t just put up the cost of his products as other firms do, selling their goods in shops or petrol stations.
What vexes Holliday is the government’s silence about the impact of rising energy costs, specifically on the hospitality industry. Already ravaged by lockdown, hospitality is suffering again as its two major costs are labour – usually about 20 per cent of overall costs – and energy which is now about the same proportion.
Yet Holliday doesn’t want handouts. “What we want is honesty and some certainty, if that is possible. If energy at these prices is going to be the new normal, then we will have to adjust to them accordingly, either through pricing or other measures.”
What he and others in his position would prefer, is to be given a clue as to what is going on, and how long such price rises might last, so that small firms like his can plan ahead. “If prices are going to stay high for, say, two years, then we have to come up with a plan B. That’s what you do as a business owner, you mitigate costs. But now we are operating with a hood over our heads. We are trapped.”
He’s right. The government has not been honest, either in fully explaining the crisis or moving to resolve it effectively. Instead our lame-duck of a Prime Minister is caught merrily food shopping in a Greek supermarket while his two former lieutenants slug it out over who is to take over from him.
None of them have bothered to address the UK’s six million small business owners directly as an important community in itself, one you might say is the backbone of the country which underpins the nation’s wealth.
It makes you wonder whether Boris Johnson’s seemingly asinine “f*** business” comment disguised a far more dangerous sentiment which has taken root, one which permeated deep into the Cabinet. As they say, the fish rots from the head down: have ministers forgotten who creates the wealth, and employment in the UK?
To date we have only had platitudes. So far ministers – including leadership contender and ex-Chancellor, Rishi Sunak, and wannabe Chancellor, Kwasi Kwarteng, if Liz Truss wins the race – have pointed the finger of blame at the Russian invasion of Ukraine as the reason for the latest crisis.
Yet this is not strictly correct. The UK has been suffering from rising energy costs since at least this time last year, partly a result of supply chain logjams because of Covid lockdowns. But the bigger reason is that for 30 years successive governments have all followed a disastrous energy policy, one which has made the country almost entirely reliant on imports and open to spikes in prices.
Until now, the government has focused on domestic consumers – and those on the lowest incomes – as the ones who will be punished the most by these extraordinary price rises. Warnings from the Federation of Small Business about the ghastly impact of spiralling inflation and utility costs on small businesses have been ignored – which is bizarre, to say the least, as the country’s SMEs employ nearly two-thirds of all workers and are the major source of new employment. And SME owners tend to vote blue, which makes it even odder that the government has ignored their pleas.
Which is why Martin McTague, chairman of the FSB, is also right to call for help in this crisis, either by extending support to small firms via the council tax system to the rates system or more direct help with bills for those which don’t pay business rates. Cutting VAT and green levies on energy is another way.
Something needs to be done: the results of the FSB’s research are harrowing. A huge number of small firms claim energy costs are up to five times higher than a year ago while a record 89 per cent of them report operating costs are up this year compared to last.
Looking beyond the energy crisis, the FSB also wants the National Insurance contribution rise which took effect in April to be overturned as another way to cut costs for business and help boost growth.
Coupled with abandoning next year’s rise in corporation tax, dropping the NI rise is one of the tax cuts being planned by Liz Truss if she makes it to No 10. Whether Truss will have the nerve to go through with her radical proposals to cut taxes once she and her Chancellor come face to face with the groupthink of Treasury mandarins is another matter.
What’s sure, is that if neither Truss or Sunak are brave enough to deliver some form of support, thousands of small businesses will close over the coming months or cut back on investment. Either way, this will have a huge and devastating multiplier effect on the economy, hurting rich and poor.
Take Holliday’s Moon Gazer as an example. Imagine 100,000 businesses with similar soaring costs, and that they all cut back on employing more workers or stop investing in new equipment. The result? Thousands risk losing their jobs just as we head into a recession. They will then turn to the benefit system for support, a move which inevitably has a traumatic effect on families and their wider communities.
Surely better for the government to move now with some form of support package then wait to have to pick up the entrails of that devastation later? The silence makes you wonder whether the Conservatives want to win the next election.