Energy Supply Market: Small Businesses

Dominic Raab Excerpts

Wednesday 13th September 2023 Westminster Hall

[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.