Rocketing energy price cap rise will push Yorkshire businesses to the brink - Chris Burn

The cap is currently £1,971 but energy consultancy Auxilione has forecast the new level – coming into effect from October – will be in the region of £3,576 per year.

The news is expected to become even worse in 2023 with the price cap forecast to hit £4,799 in January and a frankly terrifying £6,089 in April. It is then forecast to start to fall but to remain well above £5,000 throughout 2023.

The cap impacts how much a household pays per unit of gas or electricity they consume.

It is not an overall cap, so families that use a lot of energy will have higher bills, and by cutting energy use the theory is that people can save on their bills or at least partially mitigate the extent of the rises.

Clearly, the vast majority of businesses will have energy bills far higher than that of an average household and the alarm bells are ringing increasingly loudly about what the implications of Friday’s announcement will be for firms.

On an immediate level, finding thousands or indeed tens or hundreds of thousands of pounds extra to keep the lights on represents a gigantic challenge.

More widely, the reduced consumer spending that will inevitably result from households having to commit far greater proportions of their incomes to paying energy bills is going to have an impact on revenues across almost every sector.

Recent research from Uswitch has suggested that many families are unprepared for what is to come, with the majority substantially underestimating what the energy price cap rise is likely to be.

There will also be understandable pressure from employees for higher salaries to help them survive financially, yet another squeeze on business balance sheets.

A survey by the Federation of Small Businesses has found 15 per cent of SMEs believe they may have to close or downsize as a direct result of spiralling energy costs.

FSB director Martin McTague told The Independent: “How is an independent cafe supposed to find another £20,000 a year to keep the lights on and the coffee machine going, when they are barely breaking even as it is? How can a small manufacturer find another £70,000 to keep the production line going and the staff room heated? With five-figure annual energy cost increases common, too many small firms are being faced with impossible choices.”

For those cafes, pubs and restaurants that do survive, it will be little surprise in winter to see many introduce substantially reduced opening hours as a way of mitigating some of their extraordinary cost pressures.

The stark reality of the situation demands that serious Government intervention will be required by whoever becomes Prime Minister in early September.

If I was a betting man, I would be gambling the cost of my next gas bill on the fact that Friday’s energy price cap announcement will be swiftly followed by some rapid policy proposals from both the Truss and Sunak camps that go far beyond what each has put forward so far.

What the next Prime Minister and their new Chancellor can achieve to cushion the forthcoming shock to household and business budgets will swiftly shape their political futures.

Much more importantly, the measures they come up with will determine how the country manages to get through an economic winter like little we have seen before.

Thinking and doing the previously unthinkable was required in bailing out the banks during the 2008 financial crisis and in introducing the furlough scheme at the start of the Covid pandemic. Neither measure was perfect but they were far more palatable than the alternative; similar big thinking is now required.

Labour has stolen a march on Sunak and Truss by announcing a ‘blunt instrument’ policy idea along those lines; that of freezing the energy price cap at its current level for six months at a cost of £29bn they say could be partly funded through extra windfall taxes on oil and gas giants.

While Liz Truss says she believes a further windfall tax on energy company profits would send the “wrong message” to businesses, many small company owners having sleepless nights about making redundancies or even closing down are likely to take a different view as the gas giants report vast revenues.

Big political decisions lie ahead.