Energy Supply Market: Small Businesses

Wednesday 13th September 2023 Westminster Hall

16:55

[Robin Millar (Aberconwy) (Con)]

I beg to move,

That this House has considered the energy supply market and small businesses.

It is a pleasure to serve with you in the Chair, Ms Fovargue. Tourism and hospitality are vital to the local economy of my north Wales constituency. Arguably, it is a centre of tourism in Wales, with attractions that draw millions of visitors each year. We are home to Llandudno, the queen of the Welsh resorts, the UNESCO world heritage site of Conwy castle, and we are a gateway to Eryri, Snowdonia national park.

Welcoming visitors to Aberconwy throughout the year are hundreds—if not thousands—of hotels, restaurants and pubs. Those businesses are at the heart of our local economy and communities. They showcase our local produce, which is among the finest to be found anywhere in the UK, and they provide employment and training opportunities to thousands. The warm welcome that they provide and their consistent high standards are a key reason that people choose not only to visit Aberconwy but to come back.

This summer I launched my Aberconwy pub of the year competition, and over 1,000 people took their time to vote—perhaps a reflection of the importance and value of pubs to our communities. They are truly at the heart of what makes Aberconwy such a great place to visit and, more importantly, a great place to live. But their energy costs are soaring; those same businesses are concerned that non-domestic energy suppliers and brokers are taking advantage—concerns that I have heard echoed by members of the British Beer and Pub Association across the UK. I am sure that these issues apply to small and medium enterprises in all sectors of the economy and throughout the UK. However, I want to take this opportunity to concentrate on the impact of the energy supply market on businesses operating in the hospitality sector.

Let me deal first with pricing. A recent sector-wide survey by UKHospitality found that the average energy price paid by hospitality businesses doubled between 2022 and 2023. A quarter of businesses had to tie in to prices at the peak of the market between October and December 2022, when energy rose from the fifth to the second highest cost to hospitality businesses. Those rises are accounted for in part by an artificial level of risk assigned to hospitality businesses, arguably unfairly, which has been used to inflate energy costs and reduce competition in the markets. I will return to that point a little later.

It is my good pleasure to serve as vice-chair of the all-party parliamentary beer group. Last night we hosted a Welsh beer-tasting reception here in Parliament. If Members were not there, they missed a treat. It was a wonderful opportunity to showcase the quality and diversity of Welsh beer. I was delighted to welcome Dave Faragher, the owner and managing director of the Wild Horse brewery in Llandudno, a producer of some superb beers, including my favourite pale ales. Speaking with Dave, I heard once again that same pattern: the brewery’s electricity costs nearly two and half times more than it did in May 2021 and gas costs three times more. Based on its current usage rate of 109,000 kWh of electricity and 24,000 kWh of gas, its energy now costs about £22,600 a year. That is £1,900 a month more than in May 2021.

Businesses—and I—accept that there is a trade-off between price and certainty when entering into a contract. I cannot see an effective way for the Government to intervene in contracts that have been voluntarily entered into. However, I note that wholesale energy prices have fallen considerably since their 2022 peak. I also note that they remain high compared with pre-pandemic prices. I hope the Government keep a close watch on the new prices of renewed deals over the coming months. I cannot move on from pricing without mentioning the increase in standing charges. North Wales has seen some of the highest increases across the whole UK. Surely, there must be some explanation and justification as to why those eye-watering increases were introduced. Surely, we must expect to see a fall in those standing charges when new deals are negotiated.

Secondly—and in many ways a bigger concern—are the behaviours and practices of non-domestic energy providers. The same UKHospitality survey found alarming reports of the behaviours of energy supply companies, including: a refusal to quote to hospitality businesses; increased prices for hospitality businesses, with risk premiums added in; excessive deposits levied on businesses; inflexibility in negotiations; a lack of transparency from brokers; and a refusal to renegotiate contracts agreed at the peak of the energy price spike.

In June, in response to those concerns, I worked with colleagues to launch a “common sense energy supply contracts” campaign—it just trips off the tongue. At the launch supported by UKHospitality, Kate Nicholls, the chief executive, summarised accurately—and, I must say, eloquently—the importance of hospitality and the campaign to the wider economy by stating that

“Hospitality is…the canary in the coal mine”

of the economy when it comes to energy price increases. She said that it is the first to be impacted and the consequences can be seen in the sector before spreading further afield. Those things have compounded the challenges of a global pandemic and a conflict-induced international energy crisis.

Those observations, together, lead me to my third point: I question whether the non-domestic energy supply market is not now operating as a quasi-monopoly. Since launching the campaign, I have heard from colleagues, SMEs and many in the hospitality sector from throughout the UK, who echo what the hoteliers of Aberconwy are telling me.

Glenn Evans is the director and general manager of two hotels in Aberconwy, the Royal Oak and Waterloo hotels in Betws-y-Coed. These businesses provide hundreds of jobs and strengthen our local economy by welcoming tens of thousands of guests each year. Glenn has made clear to me the impact of the failing energy market, saying:

“Our experience of the Non-Domestic energy market is that there is very little if any real competition with suppliers able to name their price and business having to accept on a ‘take it or leave it’ basis with suppliers able to act effectively as a Cartel.”

That should be a great concern if, in fact, it is true that businesses have no bargaining position or ability to negotiate, or that supply periods are extended under pressure from suppliers. Is it perhaps the case that the energy market was created for a time of stability, and is proving ill-equipped and ineffective in times like these—times of greater uncertainty and turbulence? It cannot be that businesses are forced to raise prices, which increases pressure on inflation, or to enter a game of Russian roulette depending on when they must renew their contract. Suppliers will not fight for customers who cannot go elsewhere. They will not renegotiate contracts as an act of good faith when there are no alternatives for the customer to turn to. I turn, then, to the question of what Governments can do.

In May, at Treasury questions, I said:

“The Treasury was quick to act during the pandemic when hoteliers in Aberconwy told me that banks were directing them to their premium lending products instead of the Government’s coronavirus business interruption loan scheme. Now those same hoteliers are telling me that the energy supply market seems to have failed…They fear that the supplier’s thumb is on their side of the scales.”—[Official Report, 9 May 2023; Vol. 732, c. 187.]

Many of our local businesses have also told me how vital the help of the UK Government has been throughout the pandemic. For example, all the jobs at Wild Horse brewery, which I have mentioned, were protected by the furlough scheme. They have told me how important the Government’s support with energy costs was last year at the peak of energy prices, but if small businesses are to flourish, they still need support and to be supplied by an energy market that is supportive, competitive and adaptive.

I leave on record my comments about pricing and standing charges, and market failure questions. I lament the reported unwillingness of suppliers to blend and extend existing contracts. I want to focus, instead, on solutions from the Government-commissioned report from Ofgem into the energy supply market. That has now published, and it identified a series of recommendations. I urge the Government, Ofgem and energy suppliers to implement the recommendations at the earliest opportunity —something that is endorsed by both UKHospitality and the BBA.

The first recommendation is to encourage suppliers to work with hospitality businesses to resolve the issues that many are facing with prices fixed at levels far above current market rates. That should include direct, immediate communication to suppliers from Ofgem.

The second is urgently to enact Ofgem’s proposals to secure greater transparency to customers, deliver more timely responses to customer complaints and drive better practice in setting deemed rates. The third is to deliver wider access to the energy ombudsman to redress the imbalance of power between energy suppliers and businesses, which currently lies too heavily with the suppliers.

The fourth recommendation is to put in place measures to prevent the blacklisting of entire sectors, particularly hospitality, as that dramatically reduces competition and unfairly penalises business; and the fifth is to improve regulation of energy brokers, including extending protections to more businesses, the introduction of a formal redress scheme, and greater transparency around fees.

I want to end by paying tribute to businesses in the hospitality sector, both in my constituency and throughout the UK, for the invaluable contribution they make to our communities and our economy. I thank the Minister for her engagement to date. I know she is keen to address these points. I can assure the businesses of Aberconwy, and those represented by my colleagues in the common sense contracts campaign, that we will continue to do all we can to support them.

[Yvonne Fovargue (in the Chair)]

I intend to call the Front Benchers at 5.33 pm. I now call Wera Hobhouse.

17:06

[Wera Hobhouse (Bath) (LD)]

It is a pleasure, Ms Fovargue, to serve with you in the Chair. I congratulate the hon. Member for Aberconwy (Robin Millar) on securing the debate.

Bath’s small businesses are the backbone of our local economy. They create jobs and are the heart of our local community. In recent years, SMEs have had to deal with the uncertainty of Brexit, the shock of covid and then the energy crisis. What they need is a supportive Government to help them through tough times, but many of our small businesses feel badly let down.

Several companies in my constituency have expressed disappointment that the Government have decided to remove energy support. One pub’s energy bill went up by £35,000. Had the energy bill support scheme that was in place until April continued, the bill would have been reduced by £30,000. However, the Chancellor’s decision to replace that scheme meant that the pub now receives only £3,000. That big gap in support is putting small businesses in my constituency at risk of closing.

Politics is about choices. The Government chose to prioritise cutting tax for big banks over helping small businesses in my constituency. Under Liberal Democrat proposals, small and medium-sized businesses would have been offered Government grants covering 80% of the increase in their energy bills for one year, up to a maximum of £50,000.

As we move into winter, the Government must step up. Suppliers, such as E.ON, have noted that some companies will become unsustainable without Government support, as 15% of small hospitality businesses fear that they might collapse in the next 12 months, with 96% of them saying that energy prices are a significant contributor. Local firms that agreed to new energy contracts in the second half of 2022, have been paying premium prices for their energy since April. That is absurd; they have not benefited from the drop in wholesale prices.

I agree with UKHospitality that the Government must urge suppliers to work with business to resolve the issue. One potential solution from the Federation of Small Businesses is a blend and extend scheme. Blend and extend contracts enable customers to take advantage of the lower wholesale cost under their current contracts: the original contract is extended by a further 12 or 14 months, for example, and today’s rates are then blended with the original contract rates. That will reduce a firm’s energy bill and help to improve its cash flow.

Additionally, the Government must accelerate the review of electricity market arrangements to ensure that households and businesses benefit from lower-cost renewables. That should involve decoupling electricity from wholesale gas prices. Renewables are now the cheapest source of energy, but their price is artificially linked to expensive natural gas. It is incomprehensible that businesses were unable to benefit from the lower cost of renewable energy last winter.

The Government could also reduce energy bills by decreasing demand. The UK has some of the leakiest buildings in Europe. The Government must give a strong commitment to businesses to improve their energy efficiency. We Liberal Democrats will continue to push the Government to do more, so that businesses become more energy-efficient.

The Federation of Small Businesses suggests a Help to Green scheme to provide direct financial support and advice to companies. That would include a grant of up to £5,000 to allow SMEs to invest in energy efficiency or microgeneration. The independent review of net zero also championed the idea. It would be interesting to know whether the Government have considered it.

Winter is fast approaching. We need the Government to provide the short-term help that small businesses need now and the long-term solutions to stabilise energy costs. The energy crisis has the potential to kill many small businesses in my constituency. We need a Government who are willing to help small businesses to provide the goods and services that are so crucial to our local communities.

17:11

[Kevin Foster (Torbay) (Con)]

It is a pleasure to serve under your chairmanship, Ms Fovargue, and an equal pleasure to congratulate my hon. Friend the Member for Aberconwy (Robin Millar) on securing the debate. My constituency, like his, is reliant on and very much defined by the tourism sector.

Tourism is an iconic part of Torbay’s economy; we are called the English riviera for a reason. It is certainly safe to say that the services that the hundreds of tourism businesses in my constituency provide to the tens of thousands of visitors we get every year are much better than those provided in the comedy series “Fawlty Towers” by our most iconic hotelier, Basil Fawlty. He is based on a real person, but some aspects of the real individual were not included in the character because they would have been too ridiculous even for a comedy. It is safe to say that the hotels, guesthouses and attractions of Torbay offer a much better service than the one that those who had to endure Mr Fawlty got.

Earlier this year, it was useful to work with the team at the English Riviera BID Company, which is the champion of the tourism sector in Torbay, on conducting a survey of businesses’ energy costs. Unsurprisingly, the vast majority of responses were from the hospitality and tourism sectors. It is worth saying that there are bigger businesses in the sector: of the 60 replies I received, seven were from companies that turned over more than £1 million. Some of our biggest hotels, which are a key part of how tourism operates in the bay, have experienced big challenges. However, half the responses were from those under the VAT threshold, because there are many family businesses in Torbay. Perhaps we could have a separate debate on the impact of that threshold on the growth of family businesses.

It was particularly interesting to see the range of energy prices that were being paid. The lowest price was about 19p per kWh; the highest was 76.3p per kWh. That is a massive difference between businesses in the same sector, which was mostly driven by when they signed their energy contracts. It will be no surprise to hon. Members to hear that those who had to sign a new deal in the latter part of last year were paying the highest fees, with the majority paying between 30p and 50p per kWh for electricity.

Many respondents said that their monthly energy bill was double or more than double their previous energy contract. Nine respondents experienced an increase of more than 200%. That is pretty eye-watering, but the respondent with the biggest jump in their bill had an increase of 567%: their bill went from £60 a month to £400 a month, placing quite a burden on a small business.

Some said that they found it quite difficult when they came to the end of their contract. As my hon. Friend the Member for Aberconwy recalled, many were presented with a “take it or leave it” outcome. A range of complaints were made about brokers and some of their behaviours; some people felt that they had to pay up front, and others found that they literally could not get hold of them. One had their broker go out of business in the process of their trying to renew the energy contract, and some cited some fairly underhand tactics. One said that they did not particularly want to extend the contract—certainly not for the whole period suggested—and then found their voice notes being used to claim that they had signed an agreement for three years.

There are some sharp practices, on top of the obvious impacts. For some hotels and businesses, it sounded similar to the challenges they faced with banks during the financial crisis, when they suddenly had to refinance or take out swap products that they did not want or need, but the only alternative in the middle of a credit crunch was to find multimillion-pound financing deals literally overnight. Some businesses say that exactly the same tactics are being used now. Brokers knew these were distressed purchases, so they exploited them rather than working with customers.

It is not all negative. Some cited being offered things like blend and extend, which in one case cut a gas rate from 23p per kWh to 8p per kWh. Some providers are making a difference, but it is clear that far too many are not. These costs just cannot be easily absorbed. Yes, consumer prices can be put up, but that will inevitably have an impact on the number of people who can take a holiday or use a business, particularly given the wider issues in the economy.

From the survey, the question that occurred to me—I am particularly interested to hear the Minister’s thoughts on this—was what thought is being given to extending access to the energy ombudsman. As has been touched on, although many of the businesses are commercial customers, they are not far off being a family looking to buy energy. Some businesses will also be the family home—for instance, a guesthouse that doubles up as the family home. They are not complex corporate organisations that can avail themselves of a wide range of advice when signing up for a deal. What thought is being given to the regulation of brokers? We have already heard examples of sharp practice, and that certainly came up in my survey.

I join the hon. Member for Bath (Wera Hobhouse) in her comments about finally breaking the link between gas and the electricity price. More types of generation, both renewable and, in the very foreseeable future, major non-gas generation—that is, nuclear power at places such as Hinkley Point C—will make the specific link between gas and the electricity price increasingly irrelevant and outdated. It would be interesting to hear the Minister’s thoughts on that.

This has been a useful opportunity to outline some of the impacts on businesses in Torbay.

[Dominic Raab (Esher and Walton) (Con)]

My hon. Friend is making an excellent speech. Hon. Members have suggested a range of options, including reducing the energy price for small businesses, but in my constituency I have found that SMEs in particular have looked to turn from being consumers to becoming suppliers by installing renewable sources, for example solar panels. Those would not just reduce bills, but provide extra supplementary support for the local grid. Esher Theatre is just one example in my constituency. Does my hon. Friend agree that as well as support with bills, that kind of transitional support, particularly given the high capital costs involved, would go a long way?

[Kevin Foster]

I could not agree more. My right hon. Friend is absolutely right to say that for some businesses there is an option not only to be a consumer of electricity but to become a generator. One business that responded to my survey said that it wanted to look at solar, but it got turned down for planning permission by the then Lib Dem-independent coalition-run council. Some businesses say that there is therefore a need to look at planning rules and the balance there.

No one is going to argue that a listed heritage building should suddenly have something inappropriate added to it, for example, but we need to think about how we can make it a practical proposition for companies to mitigate the impact on their own bills by generating from their own buildings where possible. Solar power is the obvious option that some people will reach for but, given how diverse this area is, there will potentially be other opportunities for generating their own renewable power and having support to do so. I fully agree with my right hon. Friend’s excellent suggestion.

Tourism is an iconic industry for Torbay. The summer months have shown us some of the challenges facing the leisure industry. I am really keen to ensure that people who had to sign fixed-deal contracts at a time when the market was at its highest are not now unduly penalised, particularly given some of the sharp practices in the sector. That must not become a reason for those who are locked into high energy costs to have to switch the lights out on their business.

17:20

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Member for Aberconwy (Robin Millar) for setting the scene so well. He has done so with knowledge and expertise, as have other Members who have participated. I look forward to the shadow Minister’s contributions and particularly to the Minister’s.

Across the United Kingdom, we have all witnessed a dramatic increase in energy prices, both domestically and for our local businesses. I have been contacted regularly—I suspect it is the same for you, Ms Fovargue—by numerous local business owners about their energy bills. The increases in what they are expected to pay are financially destructive. There is much more to be done on the issue as we approach the cold winter months ahead.

I have been contacted by Colin Neill of Hospitality Ulster and Glyn Roberts of Retail NI, who are spokespeople for the food and drink sector. Just last Friday night, I had the opportunity to attend an event. It was one of those idyllic occasions—we did not get many of those this summer, or not in Northern Ireland anyway. It was a promotion by the Ards and North Down Borough Council, which employs an officer to promote local food and drink and eating out in venues across the whole council area and in my constituency of Strangford.

It was a lovely sunny night in Orlock, just off Groomsport. We were able to sit out in the fields with all the tables set out. It was almost regal, to tell the truth; it was beautiful. Unfortunately I could not stay for the meal, which was a terrible pity because Stephen Alexander—the farmer who organised the event with his wife and family, in conjunction with the council—had beef from Dexter cattle on the menu and there is nothing quite as tasty, but I had forgotten that I had another event to go to later on. My point is that my council is committed to promoting food and drink and the hospitality sector in my area. That can only happen in a way that produces jobs and an economic boost if there is support.

It is right to put on record our thanks to the Minister and the Government for what they have done so far, but when the hon. Member for Aberconwy was setting the scene, he indicated that we need to take a significant and specific look at how we can do it better. I hope to work alongside the council to promote tourism, economic benefits through jobs and gains in people’s wage packets, but we need that help. The spike in energy prices since the start of the war in Ukraine has hit hospitality particularly hard. The hospitality industry saw large falls in turnover because of the restrictions, and consumer spending has fallen. UKHospitality estimates that the average energy price paid by hospitality businesses doubled between 2022 and 2023.

I will give two examples, to give hon. Members an idea of some of the causes. The hon. Member for Torbay (Kevin Foster) referred to an increase of some 560%. A new Japanese restaurant started in my constituency about a year and a half ago. Its electricity bills went up to £7,000 per month—£84,000 a year, which is impossible to cope with. The electricity bills of a restaurant in the town of Holywood, which is in the constituency of the hon. Member for North Down (Stephen Farry), went up to some £10,000. Those are examples of how it is just not possible to sustain these energy prices.

As well as the increases in energy prices, there have been inflationary pressures on key cost lines, particularly food, drink and labour costs. Food and drink inputs have risen by some 22%, and wages are 11% higher than last year. Many businesses in the hospitality sector have engaged closely with the Government and have made policymakers aware of the issues they face, including the refusal to quote to hospitality businesses, inflexibility in negotiations and increased prices for hospitality businesses, with risk premiums added.

Ofgem has published its review into the energy supply market and has identified a series of recommendations, including encouraging suppliers to work with hospitality businesses to resolve any outstanding issues, to deliver wider access to the energy ombudsman in order to address the imbalance of power between energy suppliers and businesses, and, most importantly, to offer greater transparency to customers.

With all those things in mind, I want the hospitality sector in Strangford and across the United Kingdom of Great Britain and Northern Ireland to do better. We need Government help to make that happen. The Government have previously stepped in, and we need some input from them, because energy suppliers do not always understand the real issues in the hospitality sector.

The hospitality industry and our high streets are only as strong as we enable them to be. So many businesses have suffered financially from the impacts of the Ukraine war and the pandemic, neither of which is the Government’s fault. As we approach this winter, we must ensure fairness and greater communication between our local businesses and the energy providers. If we want to see our society succeed, to promote jobs and to put wage packets in people’s pockets, which we do, we need help. I look to the Minister for that help.

17:27

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I congratulate the hon. Member for Aberconwy (Robin Millar) on securing this debate on energy and small business.

Wholesale energy prices are falling, which must be welcomed, but this cannot be used as a reason to justify reducing support for businesses’ energy bills. Despite the falls in wholesale energy prices, many businesses—there are thousands of them in Scotland alone, and this is an issue right across the UK, as we have heard—are still stuck on contracts based on prices that were fixed during last year’s energy price peak. If businesses are to survive, the energy support from the UK Government will continue to be vital. The UK Government must also work with energy suppliers to ensure that they offer more flexible contracts so that businesses benefit from falling prices, rather than being trapped in more expensive long-term fixed contracts.

Energy prices reached record levels in the third quarter of last year. Wholesale prices have reduced since then, with prices halving between January and June this year. However, the average wholesale gas price was around double the price in June of the five years up to 2021. The energy bills discount scheme provided much less support than the previous energy bill relief scheme, despite the fact that companies on fixed contracts signed during a period of record high energy prices. The impact of falling wholesale energy prices on small businesses is inconsistent and varied. Indeed, the Federation of Small Businesses found that 13% of small firms fixed their energy bills between July and December last year, which means that they are paying three times the current rate per kilowatt of electricity.

Far too many small firms are now entangled in high fixed tariffs, and 93,000 of them say that they could be forced to close, downsize or radically restructure because of a reduction in support with their energy bills. Every single MP in the House of Commons will have had small businesses contacting them every week because they are so concerned about the impact of energy costs on their viability. Of course, energy bills are only one—a vital one—of a tidal wave of challenges that businesses are currently facing, with high interest rates, low investment, high costs, and labour and skills shortages. That is even before we factor in how customers have less money to spend on non-essential items during the cost of living crisis.

Eighty-two percent of businesses in Scotland admitted to being concerned about energy costs going into the third quarter of this year. That is hardly surprising when one considers that non-domestic energy customers in Scotland have higher energy prices than any other country in the UK. Prices in north Scotland and central and southern Scotland are the second and third highest of any region in the UK, with central and southern Scotland also paying the highest standing charges of 89.5p per day.

It is particularly galling when Scotland is an energy-rich country producing more energy than it uses, yet Scottish businesses are offered above-average market prices, unlike their counterparts in the rest of the UK. Figures released by the National Grid highlighted that by 2026-27 Scottish generators will have to pay around £465 million per year in transmission charges, while renewable developments in England and Wales will receive a subsidy of around £30 million per year. How can that be anything but a barrier to renewable energy companies setting up in Scotland?

As for the beleaguered hospitality sector, which we have heard much about today, the situation continues to be critical, with almost half of those who signed an energy contract at the peak of the energy crisis fearing that their business is at risk of failure. Pubs, bars and restaurants saw their energy prices surge by 81% in the year to May 2023, on top of the soaring cost of food and wages rising. Attempts to absorb those costs has bred unsustainable business practices that cannot indefinitely continue. Every day we know of players in the hospitality sector going to the wall, sometimes after a lifetime of building up a business.

It is vital for small businesses across Scotland and throughout the UK that the UK Government fully recognise the scale of the challenges. They must work with Ofgem in the wake of its review of the energy market and take on board its range of recommendations for changes to regulation, to increase transparency and rebalance the power between the energy supplier and small businesses. I look forward to the Minister agreeing with that when she gets to her feet.

I have said this in a number of debates: it remains the case that there was little point in the UK Government supporting businesses as they did during the covid pandemic only for those businesses to be broken on the rocks of unsustainable energy charges shortly thereafter. As the Minister will know, businesses need some certainty after these tumultuous times. I hope that when she gets to her feet she will provide some of that certainty.

17:33

[Kerry McCarthy (Bristol East) (Lab)]

It is a pleasure, as always, to see you in the Chair, Ms Fovargue. I thank the hon. Member for Aberconwy (Robin Millar) for bringing this important debate to Parliament. He came up with quite a comprehensive list of asks for the Minister, so I hope she has time to respond to them in full. I endorse many of the things he said.

As the hon. Member for Aberconwy suggested, the energy supply market seems stacked against hospitality businesses in particular, and we need both short and long-term action. Today’s debate has reflected the fact that although the actual peak of the energy bills crisis has dampened a little, the problems are still out there. Just because it is not on the front page and we are not having urgent questions every other day in Parliament, that does not mean to say that the problem has gone away.

As has been said, small businesses in the hospitality sector have faced an onslaught of difficulties over recent years. We had the pandemic, which obviously hit them very hard, we have had a rise in rents and interest rates, and we have had soaring inflation, yet sky-high energy bills remain one of small businesses’ main concerns. I have certainly seen that in my own constituency and across Bristol.

The Christmas period should be a boom time for hospitality companies, but in Bristol we saw several go under, including a brewery that was forced to stop production after a 500% increase in energy bills. That was the last straw after everything else they had had to contend with. Thankfully, there are other businesses that are just about surviving, although they are very much struggling with their bills. An independent bakery contacted me to say that it had received a final demand for an energy bill that was in the thousands—way more than they had been paying in the past. It managed to get the money together to just about pay when the final demand came in, but the bailiffs were still sent in and disconnected it. It is now having to rely on a noisy generator, which is understandably upsetting the neighbours. That is not how it wants to conduct its business, but it has no choice.

An independent café told me about the problems it was having. The neighbouring café is part of a big nationwide chain, which can negotiate an energy bill contract that goes across all of its outlets. The little independent café found that the energy companies do not want to talk to it at all because it is not a big enough customer. As we have heard, too many small businesses are locked into expensive multi-year energy supply contracts that were perhaps taken out at the peak of the market. The fact that many of them have been denied service altogether because they are deemed to be too high risk is an issue on which we need to hear from the Minister.

The Government and Ofgem must work in tandem with suppliers to ensure that the disproportionate hit that hospitality is taking does not continue. The hon. Member for Aberconwy quoted the CEO of UKHospitality, Kate Nichols, talking about a canary in the coalmine; last month she said:

“The Ofgem review last week was crystal clear that many of the issues facing businesses lie at the door of the energy suppliers. Whether it is refusing to renegotiate contracts, demanding enormous deposits, or simply refusing to supply the sector, it’s clear that some energy suppliers are mistreating the sector.”

We have heard about how extortionate security deposits and unfair contracts are holding businesses back. Labour’s view is that we need to start reforms to the market to ensure that the cheap price of low-carbon energy is passed on to consumers. We also support calls for decoupling gas and electricity, which is something that we have mentioned many times before.

It is good to hear that Ofgem has been encouraging suppliers to work with hospitality businesses to resolve the issues they are facing with fixed prices that are far above the current market level. However, that sort of voluntary approach is not good enough. The British Beer and Pub Association has been calling on Ofgem to ensure that, beyond voluntary measures for suppliers, there is also

“recourse to more binding mechanisms to ensure expected standards of conduct and behaviour are met and maintained.”

The context here is important. It is not a crisis that has come out of the blue. The situation in Ukraine has had an impact on global energy supplies, but that is not the only factor. From getting rid of our gas storage—unlike any of our European counterparts—and slashing energy efficiency installation rates, to banning onshore wind and crashing the market for solar, the Government have failed to prepare and protect Britain. It is families and businesses that have paid the price.

The extent of that failure was laid bare last week during the auction round for contracts for difference for offshore, which saw zero bids because the price was set at an unrealistic rate. There was the potential there for 5 GW of wind, which could have powered nearly 8 million homes and saved consumers £1.5 billion a year compared with the cost of electricity from gas. That is a real lost opportunity to bring cheap and clean power to many more houses. We had an urgent question on that in Parliament yesterday.

Hospitality businesses need immediate short-term support, and we heard good examples from the hon. Member for Aberconwy about delivering that within the supply market. Until we transition to clean, cheap and secure renewables, however, we will remain exposed to the same energy market that forced the Government to cap energy bills. Analysis from Labour revealed that over the summer 300,000 businesses have been forced to cut hours directly as a result of inflation, with 17% of hospitality firms reporting reducing staff work because of price rises. I think we have all seen that: anyone who went down to places like Cornwall or Devon over the summer will have seen cafés that we would expect to be open at the peak of the tourist season having to close early because they cannot get the staff to maintain seven-day-a-week opening.

Despite record energy profits, the Prime Minister continues to refuse to implement a proper windfall tax, which we have been calling for. Our green prosperity plan would cut £53 billion off businesses’ energy bills by 2031. In the short term, we would help businesses to cut their plans for good, with vouchers for energy efficiency measures. The hon. Member for Aberconwy is right to raise the deficiencies in the energy supply market. Soaring energy bills are a threat to livelihoods up and down the country. I reinforce his calls for the Government to not just sound sympathetic but actually take action to help SMEs to survive.

17:40

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)]

It is a great pleasure to serve under your chairmanship, Ms Fovargue. I thank my hon. Friend the Member for Aberconwy (Robin Millar) for securing this incredibly important debate, and I thank all who have taken part.

I know that my hon. Friend the Member for Aberconwy has been working tirelessly to try to ensure the best outcomes for businesses in his constituency and more widely. I was a beneficiary of that when I went to Conwy earlier this year on holiday with my daughter and granddaughter. He will know from our recent meeting that for me, as Minister responsible for energy consumers and affordability, it is really important that both domestic and non-domestic customers get the service they deserve. That is and always has been one of my priorities. Yesterday I met Kate Nicholls from UKHospitality, whom I have met on many occasions. I will continue to meet representatives from all sectors to understand their experiences and find out how we can support them.

My hon. Friend the Member for Aberconwy knows that the energy crisis has impacted households and businesses alike. Despite volatility in the energy market, exacerbated by Putin’s illegal invasion of Ukraine, the non-domestic energy market has remained more stable than its domestic counterpart. In part, this can be attributed to the factors that differentiate the non-domestic market from the domestic market, such as different supplier hedging strategies, risk sharing with customers, and bespoke contracts for businesses with different energy requirements.

However, we do recognise the difficulties that businesses continue to face, with energy bills much higher than historical norms. That is why the Government have stepped in to provide unprecedented levels of support for business energy costs. The energy bill relief scheme provided £7.4 billion of support for more than 1.9 million energy contracts. Obviously, it would have been unsustainable for the Government to continue to support such large numbers of businesses at the level of the energy bill relief scheme. The Government have been clear that the levels of support provided under the energy support schemes are time-limited and are intended as a bridge to allow businesses to adapt.

We believe that the energy bills discount scheme provides balance. With wholesale gas prices now at lower levels than before Putin’s invasion Ukraine and having almost halved since the energy bill relief scheme was announced, the energy bills discount scheme supports businesses until April 2024 and limits taxpayer exposure to volatile energy markets. The Government are also committed to providing the right tax environment for businesses to invest and grow. In his autumn statement, the Chancellor announced that the Government are going further to support high street businesses by reducing the burden of business rates with a package worth £13.6 billion in total over the next five years. This included freezing the business rates multiplier for another year to protect businesses from rising inflation, and increasing relief for retail, hospitality and leisure from 50% to 75% for 2023-24—up to £110,000 per business.

In addition to financial support, I have been clear in numerous meetings with energy suppliers and in my ongoing meetings with Ofgem that it is essential for energy suppliers to provide all customers with clear communications to enable them to understand their energy contracts and the options available to them. I continue to encourage all suppliers to proactively reach out and speak to their customers. As a result of our work with suppliers, we have seen some offering, as has been discussed throughout the debate, a blend and extend option, where some costs are reduced and payments are spread over a longer period. It is, of course, the responsibility of the supplier to ensure that customers can make an informed decision, including understanding the impact of the renegotiations—such as blending and extending their existing contracts—and what that means for their entitlement to energy bills discount scheme support, and the costs and benefits over the short and longer term.

I know that specific concerns have been raised about the hospitality sector, and my hon. Friend the Member for Aberconwy raised them again today. As I discussed with UKHospitality yesterday, although these are commercial matters I will continue to press suppliers to ensure that they treat all businesses based on their individual circumstances and do not take a blanket approach to the sector. The changes that Ofgem is already making following its recent non-domestic market review, and the work that we in the Government are doing, will improve the situation for all sectors, and I know that UKHospitality is supportive of all the measures.

The non-domestic energy market has not required much intervention in the past, as it broadly delivered good outcomes for business customers. However, the energy crisis has exposed areas where consumer protections can be improved for business customers, especially our small and medium enterprises, as everybody in the debate has mentioned. Ofgem conducted a review into the non-domestic energy market. It published its report findings in July, alongside policy consultation questions related to its proposals. We welcome its findings and believe it is vital that businesses receive good customer service and support from their energy supplier and any third-party providers.

Ofgem is investigating potential breaches of licence conditions and rules for certain suppliers through its compliance processes, and it will not hesitate to take enforcement action if necessary. However, we know that it is not just about compliance against existing rules. We want to ensure that businesses understand how they receive their energy. Ofgem’s non-domestic review findings proposed several regulatory changes that will improve a business customer’s experience with their supplier and energy broker, such as expanding transparency on energy broker commissions to all businesses and expanding access beyond microbusinesses to the alternative dispute resolution service for third-party intermediaries such as energy brokers.

The changes, along with other initiatives—such as a new code of conduct for third-party intermediaries being developed by the Retail Energy Code Company—will address some of the key challenges we have heard from businesses. We will closely monitor progress in this space to see whether further Government action is needed. We understand that the Government can play an active role in improving the experience of businesses with their energy contracts, which is why we are exploring how the energy ombudsman can support more businesses with their energy issues by expanding access to dispute resolution between customers and suppliers to more than just microbusiness customers. We plan to consult on any proposed changes to ensure that stakeholders can express their views before any final changes are enacted. We are already in discussions with interested groups and will continue to engage proactively.

I reiterate that the Government and I are committed to improving the retail energy market for households and businesses alike. We have recently set out a new vision for the future energy retail market to ensure that it works better for all consumers, while guaranteeing that the market returns to a resilient and investable state and supports system transformation. I sincerely thank my hon. Friend the Member for Aberconwy for securing the debate and for the work he has carried out on supporting businesses with their energy concerns. I look forward to continuing to engage with him on this incredibly important matter to ensure that our British businesses can thrive.

17:48

[Robin Millar]

I thank all colleagues for their contributions; I have learned from the debate and some really helpful points have been made.

I thank the hon. Member for Strangford (Jim Shannon), who continues to impress with his diligence on behalf of his constituents and with his grasp of the relevance of this matter to them. In particular, I highlight the observation of the hon. Member for North Ayrshire and Arran (Patricia Gibson) that every MP in this House will have had businesses writing to them about this. I confess that I am surprised that more people have not been involved, considering how vital this issue is.

I thank the hon. Member for Bath (Wera Hobhouse) for her comments about the unsustainability of this situation for businesses, and I thank my hon. Friend the Member for Torbay (Kevin Foster), who reminded us of “Fawlty Towers”—perhaps he described quite well the faulty powers that are at play in the variety and indiscriminate effect of energy price rises.

I thank the Minister for her recognition that the energy market does need improvement. Implicit in that is an acknowledgement of flaws. I welcome the reassurance that she will not seek a blanket approach and will encourage a better approach from the energy supply businesses, as well as her acknowledgement that consumer protections can be improved and that Ofgem will undertake the investigation of third-party providers, leaving the door open for future Government action. I have not thought that Governments should ever compensate businesses for loss, but I do believe in fairness in a sector and market that businesses did not create and cannot control.

Question put and agreed to.

Resolved,

That this House has considered the energy supply market and small businesses.

17:51

Sitting adjourned.