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Business energy support fails to cheer hospitality

Author: ICAEW Insights

Published: 22 Sep 2022

Government energy support measures do little to quash concerns about the impact of rising fuel prices on the viability of thousands of pubs

The government’s plans to cut energy bills for business have been met with a muted response by the hospitality sector, as details of the package of support emerge.

Business leaders from across the pub industry signed an open letter to the Government in August warning that small businesses will close with the loss of jobs if immediate action wasn’t taken on energy bills.

In September one of the first acts of the new Prime Minister Liz Truss was to announce a £150bn package to protect British households from spiralling energy prices, but Truss offered just six months’ protection for business compared with two years for households.

Although the news offered some relief to businesses, the lack of detail and prospect of just six months’ help didn’t cheer many pub owners. In the coming winter months, pubs and music venues across the UK are at risk of closure due to out-of-control energy bills, with many facing as much as 300% price hikes.

Stacey Thomas, Director and owner of bourbon bar The Lexington and three other London pubs, is perhaps one of the more fortunate publicans, as she managed to sign an energy contract late last year that will run to June 2023. Her new energy contract has tripled her costs compared with her previous deal, but at least she has secured an energy provider. Many others haven’t.

Thomas says even though some of her fellow pub owners also signed new contracts at a similar time to her, many of those are now having their contracts cancelled – leaving them without an energy provider – or the price substantially increased.

Over the summer Thomas’s energy bills were £15,000 a quarter, which she expects to rise to around £20,000 a quarter over the winter months.

Pub owners face a double hit with soaring input prices and diminishing household budgets, as people tighten their purse strings and spend less on discretionary items such as a weekly night out. Government should be concerned, because if pubs close and jobs are lost that’s also a hit to government revenues through lost VAT, corporation taxes and income taxes.

Indeed, the latest ICAEW Business Confidence Monitor (BCM) shows business confidence falling into negative territory, as companies face a cost of doing business crisis, alongside the cost of living crisis that consumers face.

“This is worse than COVID-19. There is no cash flow any more. Everything's gone up. Beer prices have gone up 50% at the beginning of the year, and they just went up again. The price of cooking oil has risen 300%. We’ve dropped probably 5% of our gross profit. And that’s not accounting for the energy crisis,” Thomas says.

The future looks bleak for pub owners like Thomas. She says: “We'll just have to run at a loss until we run out of money.”

She adds: “I would like to see the government renationalising utilities or freezing the price, because these are essential. Some owners I know can’t even get a supplier to quote them. That's a monopoly. This is not a free market any more.”

Thomas suggests there are many more measures the government and energy companies could be taking such as cutting VAT, reducing margins and removing the standing tariffs to alleviate the current situation.

To mitigate growing concerns among businesses leaders over the lack of detail about the support package for businesses, on 21 September the Department for Business, Energy and Industry announced it would fix wholesale prices for all non-domestic energy customers at 21.1p per kWh for electricity and 7.5p per KWh for gas for six months. Businesses will not need to contact suppliers as the fix will be automatically applied to them.

Announcing the details of the business energy support plan, Chancellor Kwasi Kwarteng said: “We have stepped in to stop businesses collapsing, protect jobs and limit inflation.”

Although companies will be thankful for the clarity, business owners do not run their companies on a six-monthly cycle. Although most are relieved the government has taken action, the prospect that it’ll run out by next April doesn’t ease their anxiety for the future.

Clara Cullen, Venue Support Manager, the Music Venue Trust, said that though she was surprised by Truss’s offer of business help – because the Prime Minister had originally said there would be none – “six months is a very short-term measure. We're definitely going to need other policy interventions.”

Cullen says: “This crisis is going to go on for a lot longer than six months. We definitely need to see more support measures. Energy providers are very reluctant to provide to music venues and the wider hospitality sector. That’s not a functioning energy market. This compares to the early stages of the pandemic.”

The support for businesses will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.

Kate Nicholls, CEO of UKHospitality, said: “The government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the government to ensure that there is no cliff edge when these measures fall away.”

Simon Gray, Head Of Business, ICAEW, says: “The hospitality sector has been hit harder than most. It had a short reprieve post-pandemic but has been hit again with the cost of energy crisis. Because the pub business is energy intensive, as the winter draws in it’s going to put increasing pressure on those that don't have an energy tariff locked in.”

“What I hear generally, not just from members in the pub business but across the board, is that securing energy deals is becoming more difficult and much more expensive. Getting any new deal is at a multiple of rates secured previously.”

The ICAEW’s BCM also showed that the weakening of business confidence was apparent across all types of company, although large private companies and small and medium-sized companies are, on balance, the least confident.

Truss will need to shore up business confidence and supply the details of the proposed help quickly in order to fend off a worse recession than predicted. Time is of the essence to retain our much-loved British pubs.

Further reading: Government business energy plan revealed

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