Energy Supply Market: Small Businesses

Yvonne Fovargue Excerpts

Wednesday 13th September 2023 Westminster Hall

[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.