Last year, businesses faced a massive rise in energy costs. The Government acted swiftly, subsidising business to the tune of £6 billion throughout the winter.
However, right now many businesses are still struggling with the cost of energy – even though wholesale prices are falling. Why? Because when costs peaked last year, businesses signed agreed contracts to secure their short-term survival, chaining them to deals which mean they cannot benefit from the downward trend we are now seeing in prices.
I have seen the impact of these deals first-hand, just as our economy recovers after COVID 19. Before the pandemic, this was the fastest growing place outside of London, but our economic mix, with its large manufacturing and hospitality sectors, meant we took the hardest hit of any region.
We are working hard to drive the recovery here, and it is working - by attracting investment, creating jobs, improving skills and strengthening transport. However, business growth is being threatened by energy costs.
And we are not talking about a few isolated cases. In the West Midlands, it’s estimated that over 10% of firms are paying more than a fifth of their turnover for energy. A third of firms here are paying five times the pre Ukraine war market price for energy. According to the Black Country Chamber of Commerce, 14% of firms there are trapped in energy contracts that put the viability of their business at risk.
Nationally, the Federation of Small Businesses has warned that 93,000 small firms face closure or cutbacks due to energy costs.
Our economic mix means we have lots of energy-intensive industry. One of the many Black Country firms struggling with sky-high energy costs is Alpha-Rowen Ltd, a heat and metal treatment business in Tipton and which has been hugely impacted over the last two years.
Alongside other energy price rises, its gas prices have risen from 2p/kWh in summer 2021 to around 12p/kWh in April, putting the business under serious financial stress, leaving it needing to restructure in a bid to ensure its long-term future.
All parts of our hospitality sector, from conference venues to individual restaurants, have seen their cost structures fundamentally changed by the situation.
This is not a sustainable situation. So, a dramatic response is needed. First call should be the energy retailers or their producers who must renegotiate these deals. For example, some companies will be willing to extend contracts for a cheaper rate.
Second call should be the Regulator, Ofgem, for whom this situation provides a true test. It is their job to identify where the market is failing. Clearly, right now it is failing, and I want to see them prove their effectiveness.
If the energy suppliers won’t do the right thing, and the Regulator fails to act, then the Government must intervene again – it is that important. I understand that last year’s subsidies could not go on for ever, but the £5.5 billion that has been allocated to current support can be used much more effectively, by being targeted to those firms most in need.
Indeed, if responsibility for the Energy Bills Discount Scheme were to be devolved to us in the West Midlands as a Hardship fund, we would ensure funds are delivered to those hardest hit.
We have already spent a lot of money in supporting these companies through tough times. All that support will be wasted if we now fail to step in at the eleventh hour and see them through to the end.
As someone who spent decades in business, I understand the frustration of business owners trapped in these deals, and I hear the concerns of the trade groups calling for action.
That action must come from the regulator, and from energy producers and suppliers who accept their responsibility to support economic recovery, not stifle it. If that approach fails, the Government must be willing to step in again to help firms keep the lights on.