Chancellor pulls the rug from under SMEs with major cuts to energy support package

The Energy Bill Relief Scheme, launched in October last year and set to end on 31st March 2023, provided a significant load off the shoulders of UK SMEs.

The Energy Bill Relief Scheme

The Energy Bill Relief Scheme, launched in October last year and set to end on 31st March 2023, provided a significant load off the shoulders of UK SMEs. Exorbitant energy costs, escalating borrowing rates, and a gloomy outlook for the economy meant that the scheme acted as a necessary and hugely welcome lifeline. These factors remain ever present, so the news that the Government is replacing the scheme with a far less generous year-long Energy Bills Discount Scheme from April is yet another devastating and avoidable blow to businesses, their staff, and their growth aspirations.

Extending the previous £18bn support package would have been a real lifeline for struggling businesses this year. But cutting this support to just £2.5bn for the next 6 months risks leaving the UK’s revenue generators high and dry as the recession bites.

Under the new scheme, businesses, charities, and other non-domestic energy users will be given a discount of up to £6.97 per megawatt hour (MWh) of gas and £19.61 per MWh of electricity. This contrasts to the current scheme, which caps wholesale energy prices for businesses.

For some SMEs, the discount through the new version of the scheme is far from adequate and may in fact be the final nail in the coffin for many growing businesses who are currently struggling to keep the lights on this year.   

Indeed, following this decision, there have been several reports from major UK manufacturers who now feel a heightened fear at the looming prospect of blackouts, reduced productivity, and output as well as widespread job losses this year1

In fact, our own UK SME research2 found, two in five (39%) have had to increase their prices to try to make sure they can keep their heads above water. And a quarter (25%) have paused investment on innovation and growth, and 20% have paused digital/ IT investment, to prioritise the high daily running costs of the business. 

The severity of these mounting costs – and now without the anticipated level of support on energy bills – means that 22% of SMEs are expecting a decrease in their turnover by the end of 2023. That should send alarm bells ringing through Westminster.

The year ahead looks ominous for business owners. While global inflation may be starting to show signs of easing, there remains almost unprecedented levels of pressure on businesses as double-digit inflation, higher interest rates, and stagnant wage growth that is failing to keep pace with costs all makes for an incredibly challenging economic environment. 

In the coming months, employers may see a rise in their staff asking for pay rises above the rate of inflation, leading to higher costs for businesses and potentially prices being increased further. UK trade also risks becoming comparatively more expensive compared to global exports, risking a falling demand for UK goods.

For some UK SMEs the lack of direct action to address these issues may be too late for them to continue operating. But for the most part, the catastrophe can be averted. 

However, it requires the Government to take immediate and decisive action to support the embattled SME community.

As the government sits on its hands, the importance of the commercial financial pipeline is critical. It is essential that businesses – of all sizes – have ready access to the lending they need so that they can focus on productivity and seize growth opportunities as they arise in this tougher climate.

To do this, flexibility will be essential– SMEs need to make user/customer feedback a priority over and above the broader growth vision for the business and ensure that any feedback is harnessed as the driving force behind any instrumental changes. 

Aside from a unified effort from the industry and Government to better support SMEs this year, fintech products will continue to be at the forefront of transforming the SME ecosystem. These products and services will become increasingly embedded in everything an SME does – whether that’s how payments are processed, understanding customer behaviour and of course, how SMEs access funding.


1 UK manufacturers fear blackouts and job losses after energy subsidy cut | Manufacturing sector | The Guardian

2Research carried out between 23rd – 30th November 2022 among 500 senior decision makers in UK small and medium enterprises. 

Chirag Shah
Chirag Shah

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