Tens of thousands of British businesses could collapse unless the government protects them from sky-high energy costs, insolvency economists have warned.
(Bloomberg) —
Tens of thousands of British businesses could collapse unless the government protects them from sky-high energy costs, insolvency economists have warned.
Red Flag Alert studied 355,000 companies with annual revenues of more than £1 million ($1.15 million) that it categorized as high energy users. More than one-fifth of those — 75,972 — are at risk of insolvency next year due to surging costs.
The study, released Wednesday, didn’t include companies with revenues of less than £1 million, but the group said many of those are also at risk.
“There are many more small businesses, especially in retail and hospitality, that will also face failure due to increased energy costs,” Red Flag Alert said.
Prime Minister Liz Truss is expected to reveal a package of support for businesses and households as soon as today. She is considering a price cap or a reduction in the unit cost of energy for UK companies, with extra protection for the smallest businesses, Bloomberg reported yesterday. Global energy costs have soared following Russia’s invasion of Ukraine.
“The scope and reach of the help is going to be absolutely crucial to save hundreds of thousands of small businesses this winter,” Craig Beaumont, spokesman for the Federation of Small Businesses, said in an emailed statement. Reports of a business support plan “look very promising,” he added.
Read More: UK Taxpayers on the Hook for Truss’s £200 Billion Energy Plan
Nicola Headlam, chief economist at Red Flag Alert, cited one company that spent 8% of its £1 million in revenues on energy in 2020, posting a £90,000 profit. If energy costs doubled the same firm would face an operating loss of £230,000, she said.
Wholesale and retail, manufacturing and construction companies are most of risk from higher energy costs, the report added.
With many of Britain’s pubs and restaurants under pressure from escalating bills, lobby group UKHospitality is calling for a cut in VAT — the UK sales tax — and a so-called business-rates holiday that would put the property tax on hold until April next year.
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