Energy Supply Market: Small Businesses

Additionally, the Government must accelerate the review of electricity market arrangements to ensure that households and businesses benefit from lower-cost renewables. That should involve decoupling electricity from wholesale gas prices. Renewables are now the cheapest source of energy, but their price is artificially linked to expensive natural gas. It is incomprehensible that businesses were unable to benefit from the lower cost of renewable energy last winter.

The Government could also reduce energy bills by decreasing demand. The UK has some of the leakiest buildings in Europe. The Government must give a strong commitment to businesses to improve their energy efficiency. We Liberal Democrats will continue to push the Government to do more, so that businesses become more energy-efficient.

The Federation of Small Businesses suggests a Help to Green scheme to provide direct financial support and advice to companies. That would include a grant of up to £5,000 to allow SMEs to invest in energy efficiency or microgeneration. The independent review of net zero also championed the idea. It would be interesting to know whether the Government have considered it.

Winter is fast approaching. We need the Government to provide the short-term help that small businesses need now and the long-term solutions to stabilise energy costs. The energy crisis has the potential to kill many small businesses in my constituency. We need a Government who are willing to help small businesses to provide the goods and services that are so crucial to our local communities.

Many respondents said that their monthly energy bill was double or more than double their previous energy contract. Nine respondents experienced an increase of more than 200%. That is pretty eye-watering, but the respondent with the biggest jump in their bill had an increase of 567%: their bill went from £60 a month to £400 a month, placing quite a burden on a small business.

Some said that they found it quite difficult when they came to the end of their contract. As my hon. Friend the Member for Aberconwy recalled, many were presented with a “take it or leave it” outcome. A range of complaints were made about brokers and some of their behaviours; some people felt that they had to pay up front, and others found that they literally could not get hold of them. One had their broker go out of business in the process of their trying to renew the energy contract, and some cited some fairly underhand tactics. One said that they did not particularly want to extend the contract—certainly not for the whole period suggested—and then found their voice notes being used to claim that they had signed an agreement for three years.

There are some sharp practices, on top of the obvious impacts. For some hotels and businesses, it sounded similar to the challenges they faced with banks during the financial crisis, when they suddenly had to refinance or take out swap products that they did not want or need, but the only alternative in the middle of a credit crunch was to find multimillion-pound financing deals literally overnight. Some businesses say that exactly the same tactics are being used now. Brokers knew these were distressed purchases, so they exploited them rather than working with customers.

It is not all negative. Some cited being offered things like blend and extend, which in one case cut a gas rate from 23p per kWh to 8p per kWh. Some providers are making a difference, but it is clear that far too many are not. These costs just cannot be easily absorbed. Yes, consumer prices can be put up, but that will inevitably have an impact on the number of people who can take a holiday or use a business, particularly given the wider issues in the economy.

From the survey, the question that occurred to me—I am particularly interested to hear the Minister’s thoughts on this—was what thought is being given to extending access to the energy ombudsman. As has been touched on, although many of the businesses are commercial customers, they are not far off being a family looking to buy energy. Some businesses will also be the family home—for instance, a guesthouse that doubles up as the family home. They are not complex corporate organisations that can avail themselves of a wide range of advice when signing up for a deal. What thought is being given to the regulation of brokers? We have already heard examples of sharp practice, and that certainly came up in my survey.

I join the hon. Member for Bath (Wera Hobhouse) in her comments about finally breaking the link between gas and the electricity price. More types of generation, both renewable and, in the very foreseeable future, major non-gas generation—that is, nuclear power at places such as Hinkley Point C—will make the specific link between gas and the electricity price increasingly irrelevant and outdated. It would be interesting to hear the Minister’s thoughts on that.

This has been a useful opportunity to outline some of the impacts on businesses in Torbay.

It is right to put on record our thanks to the Minister and the Government for what they have done so far, but when the hon. Member for Aberconwy was setting the scene, he indicated that we need to take a significant and specific look at how we can do it better. I hope to work alongside the council to promote tourism, economic benefits through jobs and gains in people’s wage packets, but we need that help. The spike in energy prices since the start of the war in Ukraine has hit hospitality particularly hard. The hospitality industry saw large falls in turnover because of the restrictions, and consumer spending has fallen. UKHospitality estimates that the average energy price paid by hospitality businesses doubled between 2022 and 2023.

I will give two examples, to give hon. Members an idea of some of the causes. The hon. Member for Torbay (Kevin Foster) referred to an increase of some 560%. A new Japanese restaurant started in my constituency about a year and a half ago. Its electricity bills went up to £7,000 per month—£84,000 a year, which is impossible to cope with. The electricity bills of a restaurant in the town of Holywood, which is in the constituency of the hon. Member for North Down (Stephen Farry), went up to some £10,000. Those are examples of how it is just not possible to sustain these energy prices.

As well as the increases in energy prices, there have been inflationary pressures on key cost lines, particularly food, drink and labour costs. Food and drink inputs have risen by some 22%, and wages are 11% higher than last year. Many businesses in the hospitality sector have engaged closely with the Government and have made policymakers aware of the issues they face, including the refusal to quote to hospitality businesses, inflexibility in negotiations and increased prices for hospitality businesses, with risk premiums added.

Ofgem has published its review into the energy supply market and has identified a series of recommendations, including encouraging suppliers to work with hospitality businesses to resolve any outstanding issues, to deliver wider access to the energy ombudsman in order to address the imbalance of power between energy suppliers and businesses, and, most importantly, to offer greater transparency to customers.

With all those things in mind, I want the hospitality sector in Strangford and across the United Kingdom of Great Britain and Northern Ireland to do better. We need Government help to make that happen. The Government have previously stepped in, and we need some input from them, because energy suppliers do not always understand the real issues in the hospitality sector.

The hospitality industry and our high streets are only as strong as we enable them to be. So many businesses have suffered financially from the impacts of the Ukraine war and the pandemic, neither of which is the Government’s fault. As we approach this winter, we must ensure fairness and greater communication between our local businesses and the energy providers. If we want to see our society succeed, to promote jobs and to put wage packets in people’s pockets, which we do, we need help. I look to the Minister for that help.

Eighty-two percent of businesses in Scotland admitted to being concerned about energy costs going into the third quarter of this year. That is hardly surprising when one considers that non-domestic energy customers in Scotland have higher energy prices than any other country in the UK. Prices in north Scotland and central and southern Scotland are the second and third highest of any region in the UK, with central and southern Scotland also paying the highest standing charges of 89.5p per day.

It is particularly galling when Scotland is an energy-rich country producing more energy than it uses, yet Scottish businesses are offered above-average market prices, unlike their counterparts in the rest of the UK. Figures released by the National Grid highlighted that by 2026-27 Scottish generators will have to pay around £465 million per year in transmission charges, while renewable developments in England and Wales will receive a subsidy of around £30 million per year. How can that be anything but a barrier to renewable energy companies setting up in Scotland?

As for the beleaguered hospitality sector, which we have heard much about today, the situation continues to be critical, with almost half of those who signed an energy contract at the peak of the energy crisis fearing that their business is at risk of failure. Pubs, bars and restaurants saw their energy prices surge by 81% in the year to May 2023, on top of the soaring cost of food and wages rising. Attempts to absorb those costs has bred unsustainable business practices that cannot indefinitely continue. Every day we know of players in the hospitality sector going to the wall, sometimes after a lifetime of building up a business.

It is vital for small businesses across Scotland and throughout the UK that the UK Government fully recognise the scale of the challenges. They must work with Ofgem in the wake of its review of the energy market and take on board its range of recommendations for changes to regulation, to increase transparency and rebalance the power between the energy supplier and small businesses. I look forward to the Minister agreeing with that when she gets to her feet.

I have said this in a number of debates: it remains the case that there was little point in the UK Government supporting businesses as they did during the covid pandemic only for those businesses to be broken on the rocks of unsustainable energy charges shortly thereafter. As the Minister will know, businesses need some certainty after these tumultuous times. I hope that when she gets to her feet she will provide some of that certainty.

An independent café told me about the problems it was having. The neighbouring café is part of a big nationwide chain, which can negotiate an energy bill contract that goes across all of its outlets. The little independent café found that the energy companies do not want to talk to it at all because it is not a big enough customer. As we have heard, too many small businesses are locked into expensive multi-year energy supply contracts that were perhaps taken out at the peak of the market. The fact that many of them have been denied service altogether because they are deemed to be too high risk is an issue on which we need to hear from the Minister.

The Government and Ofgem must work in tandem with suppliers to ensure that the disproportionate hit that hospitality is taking does not continue. The hon. Member for Aberconwy quoted the CEO of UKHospitality, Kate Nichols, talking about a canary in the coalmine; last month she said:

“The Ofgem review last week was crystal clear that many of the issues facing businesses lie at the door of the energy suppliers. Whether it is refusing to renegotiate contracts, demanding enormous deposits, or simply refusing to supply the sector, it’s clear that some energy suppliers are mistreating the sector.”

We have heard about how extortionate security deposits and unfair contracts are holding businesses back. Labour’s view is that we need to start reforms to the market to ensure that the cheap price of low-carbon energy is passed on to consumers. We also support calls for decoupling gas and electricity, which is something that we have mentioned many times before.

It is good to hear that Ofgem has been encouraging suppliers to work with hospitality businesses to resolve the issues they are facing with fixed prices that are far above the current market level. However, that sort of voluntary approach is not good enough. The British Beer and Pub Association has been calling on Ofgem to ensure that, beyond voluntary measures for suppliers, there is also

“recourse to more binding mechanisms to ensure expected standards of conduct and behaviour are met and maintained.”

The context here is important. It is not a crisis that has come out of the blue. The situation in Ukraine has had an impact on global energy supplies, but that is not the only factor. From getting rid of our gas storage—unlike any of our European counterparts—and slashing energy efficiency installation rates, to banning onshore wind and crashing the market for solar, the Government have failed to prepare and protect Britain. It is families and businesses that have paid the price.

The extent of that failure was laid bare last week during the auction round for contracts for difference for offshore, which saw zero bids because the price was set at an unrealistic rate. There was the potential there for 5 GW of wind, which could have powered nearly 8 million homes and saved consumers £1.5 billion a year compared with the cost of electricity from gas. That is a real lost opportunity to bring cheap and clean power to many more houses. We had an urgent question on that in Parliament yesterday.

Hospitality businesses need immediate short-term support, and we heard good examples from the hon. Member for Aberconwy about delivering that within the supply market. Until we transition to clean, cheap and secure renewables, however, we will remain exposed to the same energy market that forced the Government to cap energy bills. Analysis from Labour revealed that over the summer 300,000 businesses have been forced to cut hours directly as a result of inflation, with 17% of hospitality firms reporting reducing staff work because of price rises. I think we have all seen that: anyone who went down to places like Cornwall or Devon over the summer will have seen cafés that we would expect to be open at the peak of the tourist season having to close early because they cannot get the staff to maintain seven-day-a-week opening.

Despite record energy profits, the Prime Minister continues to refuse to implement a proper windfall tax, which we have been calling for. Our green prosperity plan would cut £53 billion off businesses’ energy bills by 2031. In the short term, we would help businesses to cut their plans for good, with vouchers for energy efficiency measures. The hon. Member for Aberconwy is right to raise the deficiencies in the energy supply market. Soaring energy bills are a threat to livelihoods up and down the country. I reinforce his calls for the Government to not just sound sympathetic but actually take action to help SMEs to survive.

In addition to financial support, I have been clear in numerous meetings with energy suppliers and in my ongoing meetings with Ofgem that it is essential for energy suppliers to provide all customers with clear communications to enable them to understand their energy contracts and the options available to them. I continue to encourage all suppliers to proactively reach out and speak to their customers. As a result of our work with suppliers, we have seen some offering, as has been discussed throughout the debate, a blend and extend option, where some costs are reduced and payments are spread over a longer period. It is, of course, the responsibility of the supplier to ensure that customers can make an informed decision, including understanding the impact of the renegotiations—such as blending and extending their existing contracts—and what that means for their entitlement to energy bills discount scheme support, and the costs and benefits over the short and longer term.

I know that specific concerns have been raised about the hospitality sector, and my hon. Friend the Member for Aberconwy raised them again today. As I discussed with UKHospitality yesterday, although these are commercial matters I will continue to press suppliers to ensure that they treat all businesses based on their individual circumstances and do not take a blanket approach to the sector. The changes that Ofgem is already making following its recent non-domestic market review, and the work that we in the Government are doing, will improve the situation for all sectors, and I know that UKHospitality is supportive of all the measures.

The non-domestic energy market has not required much intervention in the past, as it broadly delivered good outcomes for business customers. However, the energy crisis has exposed areas where consumer protections can be improved for business customers, especially our small and medium enterprises, as everybody in the debate has mentioned. Ofgem conducted a review into the non-domestic energy market. It published its report findings in July, alongside policy consultation questions related to its proposals. We welcome its findings and believe it is vital that businesses receive good customer service and support from their energy supplier and any third-party providers.

Ofgem is investigating potential breaches of licence conditions and rules for certain suppliers through its compliance processes, and it will not hesitate to take enforcement action if necessary. However, we know that it is not just about compliance against existing rules. We want to ensure that businesses understand how they receive their energy. Ofgem’s non-domestic review findings proposed several regulatory changes that will improve a business customer’s experience with their supplier and energy broker, such as expanding transparency on energy broker commissions to all businesses and expanding access beyond microbusinesses to the alternative dispute resolution service for third-party intermediaries such as energy brokers.

The changes, along with other initiatives—such as a new code of conduct for third-party intermediaries being developed by the Retail Energy Code Company—will address some of the key challenges we have heard from businesses. We will closely monitor progress in this space to see whether further Government action is needed. We understand that the Government can play an active role in improving the experience of businesses with their energy contracts, which is why we are exploring how the energy ombudsman can support more businesses with their energy issues by expanding access to dispute resolution between customers and suppliers to more than just microbusiness customers. We plan to consult on any proposed changes to ensure that stakeholders can express their views before any final changes are enacted. We are already in discussions with interested groups and will continue to engage proactively.

I reiterate that the Government and I are committed to improving the retail energy market for households and businesses alike. We have recently set out a new vision for the future energy retail market to ensure that it works better for all consumers, while guaranteeing that the market returns to a resilient and investable state and supports system transformation. I sincerely thank my hon. Friend the Member for Aberconwy for securing the debate and for the work he has carried out on supporting businesses with their energy concerns. I look forward to continuing to engage with him on this incredibly important matter to ensure that our British businesses can thrive.