Another 50,000 businesses will go bust without help with energy bills

Another 50,000 businesses will go bust and more than half a million jobs will be lost in worst economic crisis UK has EVER faced unless Liz Truss helps firms pay their energy bills, expert says

  • Economist Dr Nicola Headlam has called for significant government support
  • Profitable businesses are now making a loss due to soaring energy prices
  • She says energy cost rise has put 50,000 businesses at risk of insolvency
  • Comes as European gas prices are up 400% since Russia’s invasion of Ukraine
  • Liz Truss will announce £40bn package to help firms cope with bills this week

Soaring energy prices will see another 50,000 businesses go bust and hundreds of thousands of jobs lost unless Liz Truss helps with energy bills – as firms face a crisis ‘significantly worse’ than any recession.

Dr Nicola Headlam, chief economist at business data analytics firm Red Flag Alert, has warned that thousands of small and medium-sized businesses (SMEs) will go bust without ‘significant government support’ this winter.

Businesses that were previously profitable are now making a loss with energy prices having more than doubled for most this year.

It comes as lower gas flows from Russia ahead of and following its February invasion of Ukraine have pushed up European prices by nearly 400 per cent in the last six months, sending electricity costs soaring.

Ms Headlam told BBC Radio 4’s Today programme: ‘Our core scenario for insolvency this year is 26,000, which is very high, and that is showing some of the shakeout from the pandemic of businesses that have staggered on with stimulus but have finally become insolvent this year.

‘Purely looking at the energy cost rise, that puts another 75,000 as at risk of insolvency and, within that category, 26,000 we would expect to fail without significant govt support. 

‘In total, 50,000 insolvencies which is the highest ever and significantly worse than any crisis or recession in the past.’

Dr Nicola Headlam, chief economist at business data analytics firm Red Flag Alert, has called for a significant government support package for SMEs

Thousands of businesses are at risk of insolvency, jeopardising hundreds of thousands of jobs, because of soaring energy bills (stock image)

New Prime Minister Liz Truss will this week announce a £40billion package to help businesses cope with soaring energy bills

And asked if that is likely to mean hundreds of thousands of redundancies, she added: ‘Absolutely, because that is only companies with 10-plus employees and turning over £1million.’

The economist continued: ‘Let’s imagine that you and I are directors of a company and in 2020 we turned over exactly £1million. 

‘We would expect let’s say a 10 per cent profit margin, but actually when you look at the numbers, we would have made £90,000 – that would have been our profit. 

‘This year, changing nothing apart from our energy costs, if we just double our energy costs, and we have seen businesses with a lot more than that, then our company would post a £230,000 loss.

‘As you can imagine, that is not a board meeting where anyone is smiling whatsoever.

‘A lot of businesses [will become insolvent. With businesses that are carrying significant debt or not growing, zombie businesses, that isn’t this category. 

‘These are otherwise profitable businesses. We would need a very soft amount of assets to withstand the £230,000 loss this year, let alone next.’

Ms Headlam has called on the government to provide a sizeable support package to save thousands of SMEs and protect jobs as the cost of living crisis strangles firms across the UK.

She said: ‘The worst of all worlds would be spending hundreds of millions of pounds in order to support energy companies in their current form. 

‘We need that money to be direct to the SMEs that really need it. This is a really difficult problem. 

‘I think the main question has to be in terms of the package we are hoping will be sizeable from the govt when they bring it forward, the front of their minds needs to be avoiding this crisis in the insolvencies of small businesses, not preserving the status quo in the market.’

It comes as pubs in Britain are calling last orders at 9pm, serving food for just three hours a day and closing their beer gardens in a bid to avoid financial ruin as energy bills soar.

 

The chair of the British Chambers of Commerce, Baroness Ruby McGregor-Smith, has warned that two-thirds of pubs could face closure, further risking hundreds of thousands of jobs.

Landlords are reporting 400 per cent increases in the price of their bills, costs they are largely unable to cut as they rely on constant gas and electricity supplies to serve customers.

And Michelin-starred celebrity chef and pub owner Tom Kerridge warned the annual energy bill at one of his pubs is set to rise from £60,000 to a ‘ludicrous’ £420,000.

The sharp increase in energy costs means pubs are facing a tough choice between passing the extra burden onto loyal customers, who are also struggling with the rising cost-of-living, cutting menus and even staff, or shutting shop completely.

Meanwhile, new Prime Minister Liz Truss will this week announce a £40billion package to help businesses cope with soaring energy bills.

Unlike households, businesses have no price cap on their energy bills and many are being hit with huge increases – in some cases eight times higher.

Firms across the high street, as well as schools, care homes, hospitals and other vital services, are sounding the alarm. Allies confirmed that the PM was considering two options to help struggling firms – a cap on energy costs, akin to the plans to protect households, or a unit price reduction that all energy suppliers must offer companies.

The Government would reimburse energy suppliers for their losses and small businesses could get extra support. 

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