Energy Supply Market: Small Businesses

Patricia Gibson Excerpts

Wednesday 13th September 2023 Westminster Hall

[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.