Don’t give up on small businesses in the energy crisis


As energy prices rise, British politicians appear to be relying on Latin American literature for guidance. Like a novel by Nobel laureate Gabriel Garcia Marquez, those responsible have lost the ability to tell the difference between substance and magical realism. But companies can’t afford to live in fantasy land.

Outgoing Prime Minister Boris Johnson is clearly a fan of the literary genre. In a farewell speech on Thursday, he blamed everyone but himself for the current situation: “This is a chronic case of politicians unable to see beyond the political cycle,” he said, blaming former British Labor leaders Tony Blair and Gordon Brown, out of power for more than a decade, for the problems. “Thank you very much Tony and thank you very much Gordon.”

But the Conservative Party has been in power since 2010, giving it, in Johnson parlance, more than enough political cycles to change course. Yet British families face an 80% rise in their electricity and gas bills as the energy price cap rises from October. Businesses, meanwhile, are already struggling to pay much higher utility bills – paying the price for government magic realism.

Over the past two months, public debate about how to deal with soaring electricity and gas prices has largely focused on helping households. Neither Liz Truss, the current contest favorite for No. 10, nor her rival Rishi Sunak offered any concrete solutions, while the risks for small businesses were barely worth mentioning.

Families are facing a harsh winter and the poorest will struggle to heat their homes. Even relatively well-off families will have to divert much, if not all, of their discretionary spending to pay to keep their lights on and their homes warm. Against this backdrop, the fate of generally wealthier business owners may seem inconsequential. But with thousands of jobs at stake, their needs also deserve consideration.

Truss was asked earlier this week how she plans to support business owners. His response also crossed the line between fact and fiction: “You heard me talk about energy supply and that’s why I think dealing with supply is the answer to this problem.” In the long run, she’s right; but there is no prospect of the UK providing additional supply to meet the electricity shortages it will face next winter, and its pledge not to resort to power rationing could backfire. haunt.

Unlike UK retail customers, small and medium-sized businesses are not protected by the energy price cap, leaving them fully exposed to the recent spike in wholesale electricity prices. For some companies, costs could quadruple when renewing their utility contracts, which usually happens by the end of the year. In an example that became a cause celebre among small business owners on social media this week, the son of a small cafe owner in Leicester showed his annual electricity bill is set to soar to over £55,000 ($64,000) at the end of the month, compared to around £10,000 previously.

It’s not just UK businesses that need government intervention. The rest of Europe is also doing too little to help family businesses and small businesses. Earlier this week, the German government said it feared the country’s legendary Mittelstand sector could shut down production under the weight of rising energy costs.

Small businesses facing steep energy price increases have limited options: accept lower profits, try to pass the increase on to customers as much as possible, or ultimately cut jobs or close doors . With consumer prices already soaring around the world, central bankers fear wages will rise as workers take advantage of tight labor markets to demand wage increases. But so-called second-round increases also include companies raising the prices of goods and services to offset the impact of rising energy prices. Policymakers could face an even stronger inflation outlook than they currently expect.

So what is the solution ? A short-term option is to extend the price cap to smaller businesses, treating cafes, owner-owned pubs, convenience stores, bakeries and other family establishments as if they were, in fact, households. In practice, many of them are; Pub owners, for example, often live above their bars. Eliminating the distinction between households that run businesses from their premises and those that do not makes sense.

The regulatory regime also needs to be improved. Some companies have hedged against the crisis, securing multi-year contracts early last year before prices exploded. But when their suppliers collapsed, they lost that protection, which seems unfair. The government should also step in to prevent utilities from refusing to sell energy to small businesses unless they make huge deposits to cover the risk of bankruptcy.

Above all, politicians across Europe need to discuss not only how to help families, but also the thousands of small and medium-sized businesses that provide the jobs these families rely on. Otherwise, the energy drama of this winter risks turning into a real economic crisis.

More from Bloomberg Opinion:

• Britain’s energy crisis won’t steal Christmas: Andrea Felsted

• As gas prices soar, UK needs a real energy plan: editorial

• Keeping Europe’s lights on will become much more difficult this winter: opinion brief

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former Bloomberg News reporter and commodities editor at the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”

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