Energy crisis: Thousands of UK firms will collapse without urgent help, ministers warned

Treasury urged to expand financial support package being considered for heavy industries

‘If help from government is not forthcoming, then it is unfortunately the case that thousands of firms would not survive the winter as a result,’ said the British Chambers of Comerce (Getty Images)

Thousands of UK firms will not survive the winter unless the government urgently expands a support package aimed at tackling soaring energy prices, ministers have been warned.

The Treasury is currently considering a bid from the business secretary, Kwasi Kwarteng, for financial aid to help large firms, with particular focus on energy-intensive industries like chemicals, steel and ceramics.

But smaller businesses and leaders from other sectors say they too need help to cope with unprecedented spike in gas and electricity prices.

The situation facing small and medium-sized firms in particular is "becoming dire", thanks to supply chain disruption, labour shortages, price rises, soaring energy bills and taxes, said James Martin, director of policy at the British Chambers of Commerce (BCC).

"If help from government is not forthcoming, then it is unfortunately the case that thousands of firms would not survive the winter as a result."

The BCC's latest survey found that more than two thirds of firms have yet to report any increase in investment or cashflow since Covid restrictions eased in the summer, with smaller firms disproportionately impacted.

While households are protected by the energy price cap, there is no limit to the amount suppliers can charge to business customers, meaning they are more exposed to the current spike. There is now a "clear case" for a cap for small firms, Mr Martin said.

Mike Cherry, of the Federation of Small Businesses (FSB) said, SMEs were now in a "very dangerous space" thanks to a swathe of rising costs.

"Small businesses lack the leverage to negotiate with energy suppliers that bigger businesses have, and they lack the protections that domestic consumers benefit from," he said.

The FSB is also calling for an extension of the price cap, as well as a limit on the amount of credit that suppliers can build up from each customer, as well as protection of credit balances when suppliers go bust - measures that are already in place for consumers.

Car industry trade body the Society of Motor Manufacturers and Traders (SMMT) stopped short of calling for direct financial aid but chief executive Mike Hawes warned that the energy crisis was putting the competitiveness of British manufacturers at risk.

"With UK electricity prices nearly double those in the EU, and gas prices rising, that puts our automakers at a very clear disadvantage," he said.

"For manufacturers, energy is typically the second largest in-house cost. Decarbonisation and the shift away from fossil fuels will also see a significant increase in electricity use.

"We therefore need certainty that the UK can provide secure and sustainable low cost, low carbon energy, to maintain our industrial competitiveness and encourage drivers to make the switch to electric.”

The UK has been more exposed than other European countries to rising gas prices because it is more dependent on the fuel and has less capacity to store it after a large storage facility closed down in 2017.

Farmers have said that UK food supplies will be impacted from early next year because they are being forced to cut back on production due to a labour shortage and surging costs.

The construction industry is also struggling to deal with inflationary pressure. Brian Berry, chief executive of the Federation of Master Builders, said small construction firms are already struggling to “build back better” from the pandemic due to labour shortages and ongoing material price rises.

“Anything that inflates the cost of products like cement, steel or glass further, won’t help building projects. What we need is a long-term, sustainable strategy for energy, covering storage, use of renewables, and how we can retrofit our buildings to get to net zero. I hope the Government will publish such plans ahead of COP.”

The Treasury is currently assessing a plan to provide loans to hard-hit businesses including steel-makers and chemicals manufacturers. But details of the proposals have not yet been provided to industry leaders who attended talks with ministers this week.

Richard Leese, leader of the Energy Intensive Users' Group (EIUG), which has been involved in discussions, said he had been told only that "all options were on the table".

Richard Warren, head of policy for trade body UK Steel, said state support would be welcome but industry needed to know the details.

"Loans would be a very short-term fix but we need a mechanism for securing the industry in the long term," he said.

“We have not seen the details of what the Secretary of State has put forward. We need to see those details but the loan scheme that has been reported won't fix the underlying issue.

"It might solve a problem for businesses that have an immediate cash flow issue. It allows them to pay their electricity bill.

"But that is not the problem; the problem is exorbitant energy costs. By the time you've produced the steel, you can't sell it and you also have a large debt."