FSB: Small firms need flexible payment options to ease energy bills burden
Thousands of small businesses are at risk of closure, if suppliers fail to offer firms more flexible options for paying off their energy bills, warns a leading business group.
Martin McTague, national chair of the Federation of Small Businesses (FSB) told Morning Wire that small business customers are “trapped” in fixed tariffs from last year’s period of peak energy bills.
“Allowing small businesses to come out from the energy contracts they fixed during market peak last year is vital to their survival,” he said.
Unlike households, companies are not shielded by the energy price cap and instead have to negotiate long-term deals with suppliers – with some faced with renewals last year when soaring wholesale costs drove energy bills to record highs following Russia’s invasion of Ukraine.
FSB’s research reveals that more than one in eight (13 per cent) of small firms fixed their energy contracts in the second half of last year – with 93,000 are at risk of closing, downsizing or radically restructuring if their suppliers do not show flexibility.”
The industry group has called on suppliers to offer ‘blend and extend’ options where fixed contracts are lengthened in exchange for a reduced monthly rate – with businesses paying a monthly level between the original fixed price and the current lower wholesale rate.
This would be in line with EDF’s decision last week to offer more support small and medium business customers who were worst impacted by fixing contracts during the peak of the energy crisis.
The supplier identified 15,000 customers it will contact to offer new contracts on lower prices, covering longer period, to help reduce costs for businesses now.
“With energy companies now offering ‘blend and extend’, this shows it’s possible to give small firms a way out so we’d like to see more big energy suppliers follow suit,” McTague said.
On the spot market, gas prices have dropped significantly since last summer after Europe’s successful scramble for supplies – meaning firms that secured new deals last year missed out on vast reductions.
Rival business suppliers including British Gas, EON, Scottish Power, Shell Energy, SSE, and Yu Group, have been contacted.
Trade association Energy UK recognises businesses are struggling with high energy bills – which has come alongside a reduced level of support from the government with the watered down Energy Bills Discount Scheme providing considerably less funding than the former Energy Bills Relief Scheme.
It argued it was in “suppliers’ interests” to ensure customers can afford bills but that it was “a commercial decision” whether energy firms blended and extended rates.
A spokesperson said: “A subsequent fall in wholesale prices doesn’t alter the fact that with such fixed contracts, the supplier will have bought the energy when costs were higher. Indeed suppliers were being encouraged to offer fixed-term fully-hedged contracts at that time, but many had the foresight to offer shorter terms than usual so as to avoid locking in high prices for longer than necessary, in the case that they might fall, as has happened.”
Energy UK is instead calling for more information for business customers and regulation over misinformation, so they can make more informed decisions over new contracts.
When approached for comment, a department for energy security spokesperson added: “Contract negotiations are ultimately a matter for suppliers and their customers. However, we are in regular discussions with them and Ofgem to make sure businesses get a fair deal.”