Surging energy costs push British businesses to the brink
Surging energy costs push British businesses to the brink
A pink-painted bakery in north London has been doing a brisk business since it opened during the pandemic.
Specializing in sourdough bread, the shop — called Sourdough Sophia — is a hit in its neighborhood. At lunchtime, customers stream in and out of the tiny outpost for coffee and handmade pastries, like baked apple Danish and pain au chocolat. Many also opt to take home a plump loaf of bread. By 2 p.m., they’ve nearly sold out.
The mood inside is light. But a dark cloud hangs over the bakery’s owner, who sits huddled with her team in a corner by the window. She’s been spending more time poring over her small business’ finances, and energy costs are a big concern.
“It’s a very equipment-intensive business. All the equipment runs seven days a week,” says owner Sophia Sutton-Jones, who adds that her energy bill has rocketed more than 360% in the last year — to the equivalent of nearly $6,500 a month.
“You could either completely buckle under that pressure and pay them what they’re asking for, which is an impossible amount of money per month. I would probably shut within three months. Or, you take what I did and pay what you can. And wait for something to happen,” she says.
On top of rising energy prices, Sutton-Jones is also contending with inflation near a 40-year high and interest rates that are now forecast to reach as high as 6% by the end of this year. But she is far from alone in her challenges.
In August, there was a 42% rise in the number of business insolvencies across England and Wales compared to pre-pandemic levels. So, the U.K. government has stepped in to help, announcing a support scheme that will cut energy bills for businesses by around half their expected level this winter. Starting Saturday, prices for wholesale gas and electricity will be fixed for six months.
But is that enough?
“A majority of our members are saying this doesn’t go far enough,” said Karen Dear, operations director at the Craft Bakers Association, which represents 125,000 workers at more than 6,000 bakeries across the country.
“We haven’t got enough clarity. These are wholesale prices, what the energy suppliers pay to purchase the energy, not the retail prices. So, until the scheme is put into place, we’re not going to know how this is going to support or affect prices going forward,” Dear said.
It’s the same for the wider British manufacturing industry, which often has lead times of at least six months to procure supplies for high-end components. The industry group Make UK said because of that, the duration of the support needs to be at least doubled to one year to provide some certainty to the industry.
Neil Clifton runs Cube Precision Engineering in the north of England. His company makes components for aerospace and automotive giants, including Rolls-Royce and Jaguar Land Rover. He’s seen his energy bill soar 266% since August 2021.
“We’re trying to mitigate some of the rises that we’re seeing by how we’re using heating and lighting. And we’re also looking at whether our night shift is viable for running the machines overnight because there’s a lot of consumption there,” he said.
But that only helps on the margin.
“There isn’t a significant amount that we can do to cap the energy that we use because, of course, we don’t generate revenue without using electricity. We are very lucky to have a big order book at the moment, so what we’re having to do is pass some of those costs on to our customers,” Clifton added.
That’s a move bakery owner Sophia Sutton-Jones is familiar with.
“I’ve raised prices twice this year, in line with realistic price increases for my ingredients. I have not priced it based on the energy increases. I’m going to keep running my business, keep employing my staff, and we’ll see where we go to,” she explains.
Since she’s out of contract with her energy supplier, she says it’s not clear whether the government support even applies to her. If it does, she says, she’d still be looking at a 244% increase in price from November — a jump she argues few businesses will be able to live with.
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