The typical small business is facing energy bills 70% above pre-crisis levels from next spring, according to a respected forecaster which is warning that the government may have to intervene.
Cornwall Insight’s business energy cost forecast showed that a business such as a pub, restaurant or independent retailer was currently paying over £5,000 more per year than before 2022, when Russia’s invasion of Ukraine prompted an unprecedented spike in wholesale prices.
It predicted annual electricity bills to rise to an average £13,264 by April 2025 – 70% more than 2020-2021.
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That sum is a few hundred pounds higher than for the current April to March window – the period that covers the vast majority of business energy contracts.
Unlike for households, there is no price cap and firms have received no government help since the price peak of winter 2022/23 when the typical bill would have topped £20,000.
Just like for its energy price cap forecasts, Cornwall Insight warned that bills next year would reflect renewed rises in wholesale costs due to continued instability.
The factors included not only the continuing Russia-Ukraine war but also supply from the Middle East.
The rise in energy costs exacerbated the challenges businesses faced at a time when most were still reeling from the effects of the COVID pandemic.
COVID pandemic disruption to trade was swiftly followed by an unprecedented leap in energy costs. Pic: Reuters
The pace of pub closures, for example, shows no sign of slowing.
Government figures released earlier this month showed 239 shut across England and Wales during the first three months of the year, a 56% increase on the same period in 2023.
Industry lobby groups say business rates and increased minimum wage levels are among the other costs they are struggling to meet.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Our Business Energy Cost forecast shows businesses are faring no better than households, with bills still substantially above historic averages.
“While prices may have settled from their peak crisis levels, they are far from being sustainable for the numerous smaller businesses already struggling in this economic climate.
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“For all the criticism of the household energy price cap, it does provide a level of protection that businesses simply do not have. Given the impact of the cost of living crisis on consumer spending and high street trade, the government will need to seriously consider how to support businesses with their high energy costs if they want to prevent further closures.”
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Dr Lowery concluded: “The only way we are going to deliver sustainable lower energy bills is to deal with the problem at the source – the energy generation.
“This requires a strong governmental focus on boosting domestic production and reducing our exposure to international disruptions. While this solution is neither quick nor easy, it is essential for achieving long-term stability in energy costs.”
Kate Nicholls, chief executive of industry body UKHospitality, said: “Unfortunately, these figures will be just the tip of the iceberg for hospitality businesses, which have faced significant increases in their energy costs over the past two years.
“UKHospitality has been consistently raising serious concerns about this issue, as we continue to call for a better-functioning energy market for the hospitality sector.
“As evidenced by Ofgem, it is clear that the behaviour of some energy suppliers has exacerbated an already challenging situation by unfairly singling out – and sometimes even blacklisting – hospitality businesses, in some cases leaving them without an energy supplier. While new measures introduced by Ofgem, such as more transparency and wider access to the Energy Ombudsman, will help, there is still more work to be done.”