Cost of doing business emergency: Is the Government kicking the can down the road?

Updated: 22 September 2022
Jonathan Andrew
Jonathan Andrew
Global Chief Executive

Recent data from Household Energy Price Index (HEPI) shows the UK paying 51.85 Purchasing Power Standards (PPS) per kWh of electricity compared with France (23.2) and Germany (35.93). In fact, behind only the Czech Republic the UK is now the most expensive European country for electricity.

News, therefore, that wholesale energy prices will be capped as part of the Government’s eagerly anticipated support package for businesses is welcome.

The Energy Bill Relief Scheme announced yesterday offers discounts for all businesses for six months, starting from 1 October 2022.

It is hoped that amid a myriad of challenges – and a cost-of-doing-business crisis not seen on such a scale in the 21 century - the measures announced by Liz Truss’s new Government will provide the shot in the arm the UK economy so desperately needs to help SMEs overcome a potentially disastrous winter.

Hope, however, isn’t a strategy.

While the announcement will come as positive news for some, relief will be short-lived for many.

Without longer term plans, the Government runs the risk of kicking the can down the road with interim measures simply designed to keep UK PLC on-side.

Businesses across key sectors are currently taking orders for 12 or 24 months’ time, so a six month cap is unlikely to benefit them. Others are already changing their plans in anticipation for a lengthy battle with energy costs. This includes rowing back capital expenditure, and cancelling hiring and expansion plans.

As such, much more needs to be done to provide longer-term stability and certainty for SMEs. As the UK economy trundles towards recession, we need tangible measures from Government to tackle specific challenges including rising costs, supply chain disruption and labour shortages.

Our own data highlights the impact of these challenges on SMEs. Our latest SME Confidence Tracker study findings are sobering.

Half of SMEs say one or more of their customers has become insolvent in recent months and 30 per cent say they have experienced bad debt - non-customer payment. More than one in ten (12%) are now planning to make redundancies to cut costs and almost two-thirds say they will be forced to pass on inflationary challenges to customers.

Staggeringly, 8 in ten SMEs told us the current situation is worse for their businesses than the pandemic. So while some comfort will be felt around yesterday’s announcement, short-term measures will only paper over the cracks of a more systematic challenge.

At a strategic level, we would advocate:

  1. Over the long-term, the energy regulator, Ofgem, more effectively regulates and monitors the energy market in the UK.
  2. The Government carries out a root and branch review of fiscal policy in relation to business, including a reassessment of the extent to which measures such as Business Rates are still fit-for-purpose given the very diverse range of SMEs currently in business across the UK.
  3. The new Government facilitates collaboration between public and private sector organisations to work more closely to raise awareness of all forms of financial support available to SMEs, including those available from non-traditional sources.

While the government is right to act, longer-term measures are required to protect jobs, tackle inflation, and boost output – three key pillars required to return the UK to growth.

Without this, we are simply storing up the pain for the future.