Do British SMEs Have a Chance to Survive When the Energy Prices Rise?

According to new reports, the UK's small and medium-sized enterprises (SMEs) are facing unprecedented increases in their energy bills. Gas prices have risen by more than 250% on average in the last year. Rising overheads, combined with the difficult economic environment created by the pandemic and Brexit, will make it more difficult for British SMEs to survive.

Worrying Price Increases

A study by Cornwall Insight found that gas bills for British SMEs over the first three months of 2022 rose by 250% when compared to the first three months of 2021. In addition, the UK Federation of Small Businesses (FSB) released figures comparing commercial electricity and gas bill prices from February 2021 to February 2022. They found that the average electricity bills rose 145%, from £4,724.73 to £11,589.89, and the average gas bill increased by 258%, from £1,345.07 to £4,815.36.

These figures have led the FSB to call on the Chancellor for relief to be delivered to small firms. While domestic customers have received dedicated government support to assist in managing the concerning energy bill rises, something similar for businesses has yet to be made available. Without such strategies, British SMEs face rapidly rising overheads that may impact their survival. 

The energy market is currently unstable, and suppliers are withdrawing their tariffs without giving notice. As a result, businesses are finding it harder to establish secure energy supplies at rates that meet their budgets. For many, this means significantly higher overheads, which may squeeze some companies out of business altogether.

Cornwall Insight also estimated how energy prices for businesses may continue to rise. For some, they may face gas price increases of 310%. As yet, there is no indication that the energy price crisis will be quickly resolved, meaning SMEs should be prepared to weather the storm.

Energy Bills Eat Into Profit Margins

The pandemic and Brexit have created a challenging economic environment for the UK. The country has faced its worst recession in 100 years, and businesses are facing a multitude of additional challenges due to trading difficulties with the EU. Now, record-high energy bills have been added to the situation. SMEs who may have already overcome the difficulties brought on by the pandemic, such as forced closures, staff shortages, supply chain disruptions, and changes to standard operating procedures are now facing the challenge of emerging from this difficult two-year period having to pay more than double what they have been for their energy bills. In addition, many of these businesses are also focusing their energies on branching out to new export markets or navigating the uncertain waters of the new shape of business with the EU. As a result, these price hikes will likely eat into profit margins at a time where many SMEs are struggling to stay open.
 
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