Manufacturers in ‘survival mode’ while waiting for energy bill support

As the government prepares its energy bill support scheme for businesses, research suggests that energy costs are now threatening 60% of manufacturers, with 1 in 3 searching for a new provider.

Prime Minister Liz Truss’ energy bill support package will provide a two-year Energy Price Guarantee for households from 1 October, limiting the price suppliers can charge customers. This is expected to save the average household around £1,000 a year.

As part of the programme, businesses will receive equivalent support for an initial six-month period over the winter in the form of a discount on wholesale gas and electricity prices. This will automatically apply to usage from 1 October on fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. The government has promised that the savings will be seen in October bills (which are typically received in November), despite earlier concerns that there could be a delay of several weeks.

The level of price reduction will vary for each business depending on their contract type and circumstances. Equivalent support will also be provided to those off the grid using heating oil.

After the initial six-month scheme, the government intends to provide ongoing focused support for industries it considers “most vulnerable” to energy prices. There will be a review in three months’ time to consider where this should be targeted.

Business groups have welcomed the scheme, but voiced concerns about a potential cliff-edge for businesses in six months’ time.

Tina McKenzie, Policy and Advocacy Chair at the Federation of Small Businesses (FSB), commented:

“It’s encouraging to have the clarity from government on the form [the scheme] will take. The next stage will be for small businesses to learn what the changes mean for their current contracts and for any offers they have been looking at, but waiting to decide what to do.

“Small businesses are the definition of vulnerable when it comes to these energy price hikes. Small firms do not have the ability to hedge, or negotiate energy prices, so we will be encouraging government to continue to help small businesses across all different sectors after the six months have elapsed. There is no such thing as a ‘vulnerable sector’ when all small businesses with premises have been deeply affected.”

According to manufacturers’ organisation Make UK, almost six in ten manufacturers now say their energy costs are now “business threatening”. The survey also shows that:

More than one in ten have reduced their hours of operation, are avoiding production during peak periods, or have already made job cuts
More than half have now priced in energy bill increases into their final product
One in ten have redistributed capital from other parts of the business to cover energy costs
Seven per cent have taken on new or further finance to cover energy costs
Over a third are actively searching for a new energy provider
Two-fifths have already renegotiated a fixed tariff for the next year.
Measures to become more energy efficient are also high on the agenda. Make UK’s research suggests that 58 per cent of manufacturers have adjusted their business practices to reduce energy consumption, for example by insulating buildings or installing better performing heat systems. Meanwhile, 27 per cent have installed onsite power generation such as solar PV.

GC Business Growth Hub is able to support SME manufacturers in Greater Manchester with fully-funded expert guidance on reducing energy bills and other operational costs. For more information, contact one of our Manufacturing Advisors today.