Energy crisis: what will Liz Truss do for businesses?
Businesses and consumers alike await with bated breath for new PM Liz Truss’s announcement of her plans to ease the growing energy price crisis in the UK.
It is widely believed that Truss will announce a cap of £2,500 on household energy bills, at an overall cost of between £60 billion and £90 billion, in her announcement on Thursday.
The support for businesses is far less clear.
Leeds businessman Dave Olejnik found himself an unofficial spokesperson for small businesses when his tweets revealing his plight were retweeted by West and North Yorkshire Chamber of Commerce chief executive James Mason.
Mr Olejnik, who employs nearly 50 people across a restaurant, a bakery and three coffee shops in Leeds, including Layne’s Espresso near Leeds Train Station, fears unrestricted energy price hikes would force him out of business.
Speaking on the phone from Layne’s he said his fixed-rate agreement with his supplier ended on September 1, and the best fixed rate he can find now would see his bill go from £1,400 a year to more than £45,000.
“We feel helpless,” he said. “This is the end of the line – if we cannot afford to turn our equipment on, I don’t have a business.”
Mr Olejnik believes a price cap is necessary for businesses as well as households. He’s not interested in support loans as it doesn’t tackle the key issue of operating costs – and besides, he’s already taken on more than £250,000 in Covid support loans across his businesses. Nor does he want a reduction in VAT to compensate – he believes the VAT on F&B firms is already too high.
Who should foot the bill? “I want government to get into the energy suppliers directly.”
Economists and analysts will be sifting Truss’s announcement tomorrow to find out not only what any business support will mean, but also how she and her new chancellor Kwasi Kwarteng intend to fund it.
The energy price is a key inflation driver. In the EU and the US energy accounts for just under 10% of overall inflation. Nor is the problem one that can easily be solved by the Bank of England increasing interest rates – Russia’s invasion of the Ukraine is aggravating increases already rising due to a surge in demand for gas in Asia and a reduction in storage capabilities in Europe, according to the Institute of Government think tank.
Last month Goldman Sachs warned UK inflation could hit 22.4% next year, the highest since the oil crisis of 1975, unless the government moves to counter or cap the increase, and that could cause the UK’s GDP to contract by 3.4%. High inflation – usually a sign of an overheated economy – and mention of 1975 raises the spectre of the stagflation of the late 70s.
Paul Stanley, North West regional managing partner of insolvency and restructuring specialists Begbies Traynor, warned that the impact could be serious.
“The stark reality is that tens of thousands of businesses are at risk of going under without some kind of support scheme being implemented rapidly,” he said. “Company directors we speak with on a daily basis are nervously waiting to see what form it will take for their business and how the criteria on different levels of support might apply.
“No level of support will be absolutely perfect for all businesses and proactive business owners are already working with us to restructure or refinance their operations to survive. Any support from the Government will be gratefully received but there’s no expectation that this will be a panacea.
“The triple whammy of energy price hikes, inflation of raw materials and rising interest rates means directors are looking at every option on the table including administration. The well-documented labour shortage and higher salary expectations compound the issue.
“We know from our own research at Begbies Traynor that more than half a million firms in the UK are already operating under significant financial distress and we are braced to see more insolvencies, especially in more consumer-oriented sectors, as people tighten their belts during the remainder of the year and certainly through the first part of 2023.”
Mark Casci, head of representation and policy at West and North Yorkshire Chamber of Commerce, agreed firms would struggle without “meaningful” support.
“Our membership has been telling us of unsustainable rises in their energy bills which run to eye-watering levels,” he said, adding, “Equally finding new fixed term contracts to buffer against further price hikes is proving a tremendous challenge.”
He said the British Chamber of Commerce’s five-point plan for business support would help protect livelihoods as well as support businesses.
That plan calls for:
• Ofgem to be given more power to strengthen regulation of the energy market for businesses
• Temporary cut in VAT to 5% to reduce energy costs for businesses
• Covid-style support by introducing Government Emergency Energy Grant for SMEs
• Temporarily reverse National Insurance Contributions and put money back into the pockets of businesses and workers
• Government to immediately review and reform the Shortage Occupation List (SOL) to help bring down wage pressures and fill staffing vacancies
Liz Truss won the support of Conservative Party members with a pledge to lower taxes, and in the two days since her appointment as PM has already promised to cancel former chancellor and rival Rishi Sunak’s plans to increase National Insurance contributions and the top bracket of income tax.
How her support plan is costed will be as important to businesses as how much support the government offers.