Gas prices: Energy price cap call for small and medium firms

Gas prices: Energy price cap call for small and medium firms

An energy price cap should be put in place to support small and medium firms from spikes in costs, the British Chambers of Commerce (BCC) has said.

The group is calling for a similar system to the limit which protects households from rises in fuel costs.

It comes as natural gas prices are at record highs as the world’s economies recover from the Covid pandemic.

Business Secretary Kwasi Kwarteng met leaders from heavy industry on Friday but they failed to find any solutions.

The government is under pressure to support industries struggling with the rising costs, with concerns that some sectors could have to shut down due to high gas prices.

Labour has accused the government of being in denial about gas prices, with wholesale prices rising 250% since January.

The Energy Intensive Users Group (EIUG), which represents industries which use large amounts of energy, said that measures to help tackle rising costs were needed “absolutely right now”.

The BCC said small and medium firms mostly bought their energy several years in advance so for those whose contracts are due for renewal now are facing a “difficult time”.

It said the UK had reached a “crisis point” of the price of gas and, consequently, electricity, and said there was a clear case to create an “SME energy price cap” for businesses with under 250 employees.

In response to the idea of a price cap for industry, a government source said: “We’re working with industry on their suggestions.”

The government says it is in regular contact with business groups to explore ways to manage the impact of rising global prices and that the current situation underscored the importance of building a home-grown renewable energy sector.

Dave Dalton, chief executive of British Glass, told BBC News he thought a price cap for small and medium businesses would help but was probably “too little too late”.

He said the industry was seeing price rises immediately and he thought “immediate intervention” would be needed to help companies which were more severely hit.

A number of Conservative MPs have called for the government to take action to help industry and several sectors have warned about the issues they are facing.

Andrew Large, director-general at the Confederation of Paper Industries, said there were “serious” risks factories could stop operating as a result of the gas prices being too high, while a trade body has warned ceramics businesses may be forced to scale back or stop production.

There have already been stoppages at fertiliser and steel plants due to high energy costs.

After meetings with Mr Kwarteng on Friday, UK Steel boss Gareth Stace said the government had failed to find solutions to halt soaring energy prices.

He said he was “baffled” because governments in the rest of Europe had stepped in to support industry – although they faced lower energy costs than in the UK.

EIUG chair Dr Richard Leese told BBC Breakfast that energy heavy industries were “intrinsically linked” and if some sectors were forced to shut down it would have a knock-on impact.

“We’ve seen the curtailment in production in the steel and fertiliser sector – that’s had a knock-on impact into the supply chains in the industrial supply chains and domestic supply chains,” he said.

‘Not fit for purpose’

While there are calls for a price cap to be introduced for small businesses energy suppliers have warned that the domestic mechanism is “not fit for purpose”, with consumers set to face a “huge cost” from failing firms.

As a result of high gas prices firms that supply gas to householders are running into trouble because they have agreed to sell energy at less than the price it now costs them to buy it.

Last month, nine energy companies went out of business, forcing 1.7 million customers to move to new suppliers.

Paul Richards, chief executive of Together Energy, which he said is currently making losses, told BBC Radio 4’s Today programme that while he supported a price cap to protect customers the “mechanism is not fit for industry, nor is it fit for customers”.

He said while the cap protected customers in the short term he thought there was somewhere between £1bn and £3bn in costs which would be spread back across business and households as a result of failed suppliers.

Derek Lickorish, chairman of Utilita Energy, said there was “no doubt” there would be a cost paid by consumers for failed firms.

“The government has to look at means by which they can support not only energy suppliers but also big industry,” he said.

Energy regulator Ofgem has already warned that households will see further “significant rises” in the spring.

The price cap, which applies to households in England, Scotland and Wales, is revised twice a year and is next due to be changed in April.

Mr Lickorish said he would like to see it updated four times a year and for a longer period of gas prices to be considered in setting it.

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