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Energy crisis: Half of UK small businesses at risk of collapse

·Business Reporter, Yahoo Finance UK
·3-min read
Energy crisis: An employee of a metal print company
The data revealed that 49% of the respondents admitted they will be raising prices this year in an attempt to offset increased expenditure and rising energy costs. Photo: Reuters/Michaela Rehle

More than half (54%) of UK small and medium enterprises (SMEs) are at risk of collapse from rising fuel and energy prices, a new report has found.

According to the SME insights report from insurance provider Simply Business, rising costs are now believed to be one of the greatest threats to SME survival in 2022.

It also found that just over one third (36%) stated that tax and national insurance hikes are their greatest concern, with lack of funds or access to credit also among the top worries.

Marketing and the ability to find customers, and recovering from pandemic related losses were also big concerns.

Read more: Liz Truss's energy support package to benefit richer households, IFS warns

The data, which surveyed over 1,000 UK small businesses, revealed that 49% of the respondents admitted they will be raising prices this year in an attempt to offset increased expenditure.

One in five (21%) intend to raise prices by between 6% to 10%, and for almost one in 10 owners (7%), these increases could be as much as 20%.

Some 87% of small business owners lost an average of £20,981 ($24,087) each over the last two years, with many still suffering financially. The total cost of COVID-19 now sits at £109.6bn – with one in six (16%) believing they will never recover financially from the pandemic.

It comes as three in five (59%) small business owners are now calling on the government to review or reduce the energy price cap, while a fifth (21%) state the VAT cut needs to be reviewed or extended

One in 10 (12%) feel that the government should review or reduce national insurance.

Watch: How to save money on a low income

While the energy price caps do not apply to businesses directly, millions of small business owners are still experiencing increased energy bills at a time when costs are rising in most operational areas.

At the same time, with a substantial number of households affected by rising energy bills, consumer purchasing power is going down as people cut back on non-essential spending.

SMEs in food and drink, hospitality and retail are most at risk, decreasing revenue and income for small business owners still in the vital post-pandemic recovery period.

Read more: New PM's term in office to be marked by deepest living standards squeeze in a century

“Apart from raising prices, the main response to these adverse pressures from businesses is likely to be to simply hunker down, reduce costs where possible, and get on with it: that is, to pause expansion plans and, for those with employees, to cut back on hiring, hoping that conditions will improve over the coming year,” Jonathan Portes, professor of economics and public policy at King's College London, said.

“The crucial factor here is likely to be consumer confidence and consumer demand. This has clearly taken a severe hit in recent months, but may recover if inflation reduces and real incomes return to growth.”

He added: “What can the government do to help? Fuel and energy prices are by far the largest concern, and here the key drivers are global. However, UK conditions have been aggravated by both Brexit and the recent fall in the pound, which further pushes up energy prices, as well as by the operation of the energy market and the price cap.”

Watch: Liz Truss's new-look Cabinet meet for first time to consider energy bills plan