Ofgem, the UK’s energy regulator, has just announced its latest cap. The cap, which dictates the prices that suppliers can charge, is almost £700 higher than this time last year—meaning energy bills are set to rise by a massive 54% this year. This means that the price many British households pay for their heat and electricity is set to rise by 54 percent in April, including businesses working from home.
Why the Increase in Energy Bill?
There are multiple factors to blame. First, gas prices skyrocketed in recent months. This is due to a cold winter in Europe in 2020/21 which ate into existing supplies—and put pressure on this year’s supply. There was also a relatively windless summer in 2021, which affected wind energy production. Finally, there was increased demand from Asia.
Given that it’s a net importer, the UK is particularly vulnerable to the rise in gas prices. And with gas commonly used to generate electricity, the latter has gone up in price, too.
Households are bracing themselves for the year ahead—but this price hike doesn’t just affect individuals. Businesses of all shapes and sizes must also prepare for increased energy costs, with the rise particularly concerning for SMBs.
Let’s examine how the price increase will affect SMBs, dig into the slither of good news (well, the not-so-bad news!), and outline how the government is planning to help.
If you need any advice in terms of cashflow and taxes, our experienced accountants in the UK can help.
How Will This Price Rise Affect SMBs?
Unsurprisingly, energy costs are one of UK SMBs’ largest expenses. Business Energy estimates that SMBs spend anywhere from £3,507 - £6,462 per year on energy—and that was before the price hike. If we now increase those figures by 54%, that amounts to an average spend of between £5,400.97 - £9,951.48.
This rise has been described as pushing British SMBs “to breaking point”, with rising energy costs and falling revenues creating the perfect storm. It’s therefore unsurprising that 7 out of 10 SMBs see energy bills as a growth barrier moving forward.
Indeed, with SMBs making up 99% of all UK businesses, this doesn’t just represent a growth barrier for them—it represents a significant challenge for the nation’s economy as a whole.
The takeaway is clear: this price hike will hit SMBs hard. There are no two ways about it.
Businesses To Get More Creative To Reduce Costs
Times are tough for SMBs. Really tough.
According to Tyl by Natwest, 54 per cent of SMEs in the UK are already spending £3,000 or more a year on energy. In fact, 65 per cent of SMEs are spending up to one-fifth of their total business costs on energy consumption. This would mean that business costs would increase as well, eating up into profits.
However, if this price rise had occurred two years ago, things might’ve been a lot worse.
An estimated 27% of the UK’s working population did at least some work from home in 2019 (in other words, worked in hybrid workplaces). Fast-forward to June 2021, and 85% of the population want to follow a hybrid approach. Over half say they’d quit their jobs if their company didn’t allow them to continue with a hybrid working model.
Businesses would need to find other creative ways to reduce costs. With their workforce following a hybrid approach, companies can reduce their office space. Fewer employees will be in on any given day—meaning they don’t need one seat per person. Of course, a smaller space requires less heating.
We’re not saying that energy costs will completely diminish—only that SMBs won’t have to pay to keep all their employees warm all of the time. Instead, those working from home will have to cover their heating costs.
According to Taimur Ghafoor, Osome Senior Accountant, “SMBs have been dealt a small lifeline by the increased popularity of hybrid working. Employees now value the freedom and productivity they gain when they can work from home, and they don’t seem in a rush to give this up any time soon. SMBs can therefore reduce their office space and keep energy costs lower than they would otherwise have to be.”
It’s not much, but it’s a start—and amidst all the bad news, it’s a welcome glimmer of hope.
What’s the Government Doing To Help?
Chancellor Rishi Sunak has just announced 3 measures to mitigate the impact of this drastic rise in energy prices.
- In April, people living in council tax bands A to D will receive a one-off £150 rebate on their council tax bill, which is estimated to affect around 80% of all households, and the cost won’t need to be repaid. However, it’s unclear whether this affects businesses (as they pay business rates, not council tax).
- English, Scottish, and Welsh energy customers will receive a £200 rebate on their energy bills in October. Unlike the first measure, however, this will be repaid over 5 years from 2023 onwards (amounting to £40 per year).
- Lastly, between October and March, the government will expand the warm house discount scheme, providing around 3 million households with a one-off discount on their energy bills worth £140.
As promising as these measures are, they don’t specifically help SMBs, unless you operate out of a home office. Indirectly, however, there could be some knock-on benefit.
By providing a certain level of relief from these massive price rises, the Chancellor has somewhat curbed the massive rise in the cost of living. Businesses won’t have to increase salaries as much as they otherwise might have had to, just to ensure their employees can keep their necks above water.
The Next Step? Get Smart About Your Accounting
Unfortunately, the hike in energy prices will affect us all—but that doesn’t mean there’s nothing you can do to minimise its impact. Now more than ever, it’s crucial that you keep as much hard-earned cash in your business as possible. You need to maintain tight control over your expenditure, analyse where you’re spending too much money, and identify profitable lines of business (and markets) that you need to pursue moving forward.
Here Is Where Osome Can Help
We provide British SMEs with leading AI-based accounting software that enables them to stay in control of their costs at all times. Plus, our dedicated Chartered Accountants are on hand 24/7 to answer any questions you might have—meaning you’ll never be left in the dark while you wait for a response.
Get in touch today to find out more about how we can help your business better manage its costs.