Today the energy regulator Ofgem published its latest announcement on the price cap that will come into force for domestic consumers in April. The new price cap works out at around £3,280 for a typical household. Of course, with the Government’s energy price guarantee still in place, albeit at a higher level of around £3,000 for a typical household, consumers will be protected from some of the increases that they would otherwise be looking at.
Even though no consumers will be paying it, the change in the Ofgem price cap is a significant development. The fact that it has come down from a high of over £4,000 is indicative of falling wholesale prices in the market, and more importantly it means that the Government will be spending less to make up the difference through the Energy Price Guarantee than it had previously anticipated. We believe that at least some of this money should be used to support the businesses that are most at risk of closure as a result of being stuck on fixed contracts that were signed at the end of last year.
We’ve heard from the Government in recent weeks and months that there just isn’t enough money to do more to support businesses in 2023. The currently proposed energy support scheme for businesses provides a paltry 1.9p per kWh discount for eligible businesses, equating to around £1,500 off an annual electricity bill for an average convenience store. This is for all businesses that are above the threshold, without any further targeted support for those that are really struggling to make ends meet.
As part of our analysis of the impact of high energy costs of convenience stores, we’ve identified that there are up to 6,900 independent retailers that could be at risk of closure as a result of paying excessive rates for their electricity. While we appreciate that we’re now beyond the good old days of paying less than 20p per kWh for electricity (the upcoming consumer price cap works out at just over 50p per kWh for the coming year, with indications that it’s set to fall further in July), retailers should not have to face rates of upwards of 80-90p per kWh that were signed as part of fixed contracts during the height of wholesale prices in the second half of 2022.
Even taking the additional funds that the Government is going to have available unexpectedly as a result of falling wholesale prices out of the equation, by doing nothing and letting stores close it is facing direct tax losses to the Treasury of around £70m. Targeting additional support of £10,000 per business in 2023/24 would be at worst cost neutral, and when you factor in the money that they weren’t expecting to have, it seems like a no brainer to do more to help keep these essential businesses open. And if the Government really doesn’t want to spend the money, it has another option – require the energy companies that are currently busy posting billions in annual profits to allow convenience stores to leave the excessive fixed contracts that are very clearly an anomaly.
If left unchecked, the energy crisis facing convenience stores this year will close stores in numbers. For the sake of the communities they serve, the thousands of people they employ and the retailers whose livelihoods depend on it, we hope the Chancellor reconsiders the level of support being offered in the Budget, and are calling on retailers and MPs alike to raise their concerns.
