Britain risks becoming a ‘tourist state’ with businesses forced to close if the Government doesn’t address soaring energy costs, a startup boss has warned.
Joe McDonald, founder of energy transaction platform Tem, says that businesses are facing a near-existential crisis as costs mount.
While the Government has removed some of the burden from households with the energy price cap, businesses have been left without a paddle.
Now they are staring down the barrel of even higher prices because of the Iran war, leaving the future of British firms and the wider country in a perilous state.
Businesses operating in an ‘unfair market’
British businesses face some of the highest energy bills in the world. The over-reliance on energy imports and its impact on bills weighs on small firms, which are also grappling with higher taxes.
While households are largely protected by either Ofgem’s price cap or fixed tariffs, the business market is far less competitive and transparent.
McDonald’s company Tem, which counts Silverstone race track among its clients, connects businesses directly with renewable generators to lower costs.
But he recognises that for the fixed fees portion of the bill, ‘there’s nothing you can do’ and businesses must understand that they’re ‘operating in an unfair market where there isn’t transparency.’
Tourist state: Startup boss Joe McDonald says business energy costs are unmanageable
A recent report by the British Chambers of Commerce found that 52 per cent of firms faced pressure to raise prices in the final quarter because of higher utility costs.
Recent developments in the Middle East, which have sent oil and gas prices through the roof, are only set to exacerbate the trend.
Like household energy bills, the fixed portion of business energy bills is typically used to fund operating costs and network upgrades, but it is reaching unmanageable levels. Even if businesses cut their usage to the bare minimum, the fixed portion of their bill remains high.
‘Network operators basically charge and go on an unlimited spending spree because they know that the bill is going to be picked up by consumers and businesses,’ McDonald tells This Is Money.
Similarly, the exemption system, which allows ‘energy-intensive’ firms to receive a discount on their bills, is also not fit for purpose, says McDonald.
‘It can’t just be one factory that has 500 jobs that gets exempt when you have a category of businesses that might employ 50,000 people, maybe that’d be hotel chains or restaurants that equally could hugely benefit from exemption.’
‘We risk losing the lifeblood of the UK’
The Government has doubled down on its Net Zero targets to improve energy security, but it is likely only to pile further pressure on small firms.
The focus on meeting generation targets will also become largely irrelevant, warns McDonald.
‘The Government seem surprised when they’re getting reports that demand levels are falling. Quite frankly, by 2035, you won’t have the demand for all the generation we’re building because costs aren’t being reflected in cheaper bills to businesses.’
Businesses pay the highest rates in Europe because of these subsidies and taxes levied on the market.
It has created a ‘stealth tax’ on business, which is damaging competition, says McDonald.
‘Businesses pay the highest rates in Europe because of these subsidies and taxes levied on the market. That’s a problem, because you become a tourist state very quickly these days if your businesses can’t be competitive.’
‘What does the UK have right now if we don’t have the businesses? We have a real risk of losing not only the lifeblood of the UK – the small businesses, the corner shops serving our local communities – but the manufacturing and export competition on a global scale.’
As other countries aggressively build out their energy capabilities, the UK could quickly be left behind. The Middle East conflict is only further highlighting how vulnerable we are to energy shocks.
‘We’re not going to build nuclear cheaper than China, coal cheaper than India, gas cheaper than the US. The cost of the electron effectively defines where the UK sits long-term in the world order. If [the government] can pick core strategic aims… it can execute that vision.’
The regulator is exacerbating the existing issues in the system too, says McDonald.
‘Ofgem’s approach of how it introduces competition is sometimes hampered by its concern about protecting to avoid instances like Bulb [the collapsed energy firm], which makes sense. But if they over-regulate and reduce competition, it will always lead to higher prices.’
McDonald might be sounding the alarm loudly, but he insists he is broadly positive as new products and technology come to market.
‘I don’t want us to fall behind. It’s not something that can take 10 years; it needs to happen in months and years to allow for businesses to survive.’
You’d be hard-pressed to find a small business that disagrees with him.
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