UK Businesses: Thousands of businesses are at risk of closing without government support due to rising energy bills, according to bankruptcy experts.
Red Flag Alert, an organization that monitors the financial health of companies, told the BBC that previously profitable companies are facing huge losses.
The consultancy said many of those left would be forced to make staff redundant.
UK Businesses: Companies waiting to hear whether they will get help with their energy bills.
On Thursday the government led by new Prime Minister Liz Truss is expected to announce significant financial support for households facing an 80% increase in energy price caps in October.
However, businesses do not fall under this limit, and Red Flag is warning that more than 75,000 large companies that are high energy users are at risk of bankruptcy or layoffs without government support.
The government’s plan is expected to include some relief for businesses – but details are not yet known.
According to Red Flag, many companies will face a choice between paying salaries or paying energy bills.
“Businesses cannot afford these costs and will be forced to make decisions very quickly about the number of employees or being able to pay energy bills,” said Nicola Headlam, chief economist. “It’s going to be a reality and it’s coming back on track very quickly.”
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According to Red Flag Alert, there are 355,000 companies with a turnover of more than £1m that are designated as high energy users – industries such as steel, glass, concrete and paper production. Of those, the company estimates that 75,972 are at risk of bankruptcy, and estimates that 26,720 of those could fail due to energy costs. This is in addition to the 26,000 bankruptcies he predicted earlier this year.
“That’s a huge number of people whose businesses will fail without a massive support package from the government,” Ms Headlam said. “It is higher during the pandemic and than in any other recession.
“A business with a turnover of over £1 million two years ago would have spent around 8% of this on energy costs and made a profit of around £90,000.
“If energy costs double to 16%, that immediately kills profitability, and they head straight into a scenario where it threatens the viability of the business within a year.”
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The Red Flag Alert said that in addition to large, energy-intensive companies, smaller companies with less than £1 million in turnover were also at risk of failure. It highlighted the hospitality sector where companies face a triple threat of rising energy bills, higher supply and staffing costs and a decline in consumer spending due to inflation.
‘destructive’
This is certainly the case for James Greenhalgh, who also runs Flamingos Coffee House in Leeds and a bar in the city. The combined energy bill for the two will rise from £1,500 to almost £10,000 from the start of October.
“It’s costing us more than our wage bill. It’s devastating,” Mr Greenhalgh said.