Targeted SME support needed after announcement that energy support scheme will be replaced in March

Tue 10 Jan 2023
Posted by: William Barns-Graham
Trade News

Male factory employee working with industrial equipment

Industry leaders have given a mixed reaction to yesterday’s announcement that the government’s current support for businesses’ energy bills will expire in March.

The current package, which caps the unit cost of gas and electricity at a fixed price, will be replaced by a new scheme which will include a discount on wholesale prices, the government announced in the House of Commons.

Targeted support needed

The Institute of Export & International Trade’s (IOE&IT) director general, Marco Forgione, said targeted support for SMEs will be needed as part of any new scheme. He also said the government needs to boost UK competitiveness by helping more firms to trade internationally.

“The government was never going to be able to provide support for energy bills in perpetuity, but the announcement yesterday will undoubtedly cause concern for many businesses, particularly SMEs.

“These are difficult times, but the UK will only return to economic growth if it backs its businesses. A key part of this is encouraging firms to export because companies that trade internationally have been proven to be more efficient, sustainable and profitable.

“The government needs to provide targeted support for SMEs that could, but don’t yet, trade internationally as part of the scheme it launches in March.”

Uncertainty for businesses

Other industry bodies have raised concern that the expiry of the current support scheme will create uncertainty for businesses.

Alex Hall-Chen, principal policy advisor for sustainability, skills and employment at the Institute of Directors (IoD), told the Guardian: “The design of the new scheme will also provide less certainty for businesses in budgeting. Given that future energy costs will no longer be able to be projected with any degree of confidence, the willingness of directors and auditors to sign off their entities as going concerns will be impaired.”

Martin McTague, the national chair of the Federation of Small Businesses (FSB), called the announcement a “massive disappointment” on BBC Radio 4’s Today Programme and said SMEs will be “left at the mercy” of an energy market that is already extremely volatile due to Putin’s invasion of Ukraine.

Realism

Other business leaders have said the government’s continued support from March, via the new discount offer, is welcome as it would have been unrealistic for the current scheme to be offered on an ongoing basis.

CBI director for decarbonisation policy, Tom Thackray, told Sky News: "It's unrealistic to think the scheme could stay affordable in its current form, but some firms will undoubtedly still find the going hard."

UK Steel told Sky that the government is “betting on a calm and stable 2023 energy market, in a climate of unstable global markets, with the scheme no longer protecting against extremely volatile prices."

Market shift

Last week, Chancellor Jeremy Hunt told industry leaders that the current scheme to support businesses was “unsustainably expensive”.

Despite concern from industry leaders, wholesale energy prices have fallen sharply over recent weeks after a period of relatively mild weather in the UK and Europe, reports the Guardian.

Economists at HSBC said falling prices could benefit businesses and help to bring down inflation.

Manufacturers’ warning

Ahead of yesterday’s announcement, UK manufacturers warned that ongoing high energy costs are damaging UK competitiveness and could lead to job cuts and falling productivity.

A survey of members by manufacturers association Make UK found that the proportion of manufacturers that think Britain is a competitive location has halved to 31% from 63% a year ago.

The survey of 235 businesses took place in November 2022, just after Liz Truss’s short-lived stint as PM.

Investor confidence dips

More than half (53%) of firms said ongoing political instability had damaged business confidence, and 43% said Britain had become less attractive to overseas investors, reports Reuters.

When asked, two thirds of respondents expected to cut jobs or reduce productivity due to rising energy costs.