31 Aug 2022
By Stuart Patrick, Chief Executive of Glasgow Chamber of Commerce
For eighteen months, Chamber of Commerce members across the UK have been reporting problems which the British Chambers of Commerce (BCC) has been formally recording in its regular quarterly survey work. Shortages and price rises in sourcing raw materials, difficulty finding workers in almost every industrial sector and dramatic increases in utility bills are making it progressively more difficult to operate a successful business. And it has not always been clear that governments have recognised how hard it is becoming.
Ofgem’s announcement of the shocking increase in the household energy price cap may finally have confirmed in political minds the financial cliff that millions of families are facing this winter. Thousands of independent SMEs find themselves standing next to the same cliff, already stretched by two years of Covid-19 restrictions. In the BCC’s most recent survey energy bills were the most common cost concern, confirmed by 67% of the firms involved.
Last week the BCC took the opportunity to issue a five-point plan, making it clear to government that the extraordinary pressure facing households after the Ofgem price cap adjustment is at least as serious for businesses.
The BCC plan proposes an extension of Ofgem powers to strengthen regulation of the energy market for businesses with many reporting difficulties getting quotes from energy suppliers or access to fixed rate contracts. Approaching half of BCC surveyed members are on variable rates or will be by January. That leaves thousands of businesses very exposed.
The BCC plan also argues for a temporary cut in VAT on energy bills to 5% to reduce power costs for business and a temporary reversal of April’s rise in National Insurance Contributions (NIC) at least until April 2023. It may surprise many that businesses cannot routinely claim back the 20% VAT they usually have to pay on their power bills so a cut in energy VAT would make a tangible difference.
Reversing the NIC increase is not directly related to energy costs of course but it reflects a call on government to take every step available to bring business costs down. That is a call that I understand the Scottish Government is also exploring and it will have been hearing from business bodies that there is a long list of options, ranging from business rates to workforce parking levy, where actions could be taken to ease existing or avoid new cost pressure on SMEs.
The UK Government has already committed to making direct financial contributions to households and must surely be gearing up for more. The BCC plan asks for similar support for SMEs through a Government Emergency Energy Grant at a scale similar to the Covid-19 Business Grants Scheme. It won’t help households if there is a tidal wave of SME’s going bust over the winter.
Finally, the BCC is asking for a review and reform of the Shortage Occupation List (SOL). There are 1.3 million unfilled job vacancies in the UK right now. Adding more jobs at a variety of skills levels to the SOL would be one means of easing the pressure on businesses struggling to respond to customer demand.
There is one additional proposal which the BCC did not have access to at the time it drew up its plan which deserves careful UK Government consideration. Scottish Power’s Deficit Fund essentially aims to freeze energy prices either for all customers or for targeted groups, using UK Government lending to offset the shortfall energy companies would face in maintaining the energy price freeze. That lending would be paid back by customers through network charges over perhaps fifteen to twenty years.
ScottishPower’s proposal has several merits. It recognises that energy price rises could be here for at least two years and so operates at the scale necessary to reflect that. It also gives government options to widen the support to businesses, and buys time whilst the market is reformed for the future.
The basic message is very clear. Don’t overlook the needs of SMEs in tackling this energy crisis.
This article was first published in The Herald on Wednesday 31 August 2022
