Energy Supply Market: Small Businesses

Kerry McCarthy Excerpts

Wednesday 13th September 2023 Westminster Hall

[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.