UK businesses laud energy relief, but costs still a struggle

Sep 21, 2022, 11:24 AM | Updated: 11:28 pm
Sophia Sutton-Jones works in her bakery Sourdough Sophia in London, Wednesday, Sept. 21, 2022. At t...

Sophia Sutton-Jones works in her bakery Sourdough Sophia in London, Wednesday, Sept. 21, 2022. At the store, in the Crouch End neighbourhood of north London, the electricity bill has more than tripled since the start of the year, to roughly 5,500 pounds ($6,260) a month, up from 1,500 in January – a crushing increase that's making life difficult for the independent business. The bakery's woes underscore how energy price spikes are threatening companies, alongside a cost of living crisis afflicting Britain and much of Europe. (AP Photo/David Cliff)

(AP Photo/David Cliff)

LONDON (AP) — At Sophia Sutton-Jones’ bakery in North London, the electricity bill has more than tripled since the start of the year. It now costs 5,500 pounds ($6,260) a month to power the ovens and keep the lights on at Sourdough Sophia.

“Where should I magically take 4,000 pounds per month extra that I didn’t calculate for?” she said. To cope with rising costs, she’s had to borrow 50,000 pounds and raise prices twice this year for her loaves, baguettes and pretzels.

She doubts that even a massive support package announced this week by the U.K. government will make much difference to businesses like hers struggling with soaring energy costs.

Pubs, restaurants, breweries, retailers and other businesses across the United Kingdom are being pushed to the brink by skyrocketing energy bills that have helped send inflation to a four-decade high and fuel a cost-of-living crisis.

Forced to take action by cost increases that threaten to tip the British economy into recession, new Prime Minister Liz Truss’ government released details Wednesday that wholesale energy bills for businesses will be capped this winter.

The government will pick up some of the tab for six months starting Oct. 1 so businesses pay discounted rates that are “less than half the wholesale prices anticipated this winter.”

It’s also capping household energy bills and expected to detail more economic intervention Friday.

Energy price increases were stoked first by the global economic recovery from the COVID-19 pandemic, which sent fuel demand soaring, and then by aftershocks of Russia’s war in Ukraine. The U.K. gets only a fraction of its gas from Russia, but it’s more vulnerable to volatile spot market prices because it has less nuclear and renewable energy and little gas storage capacity.

The support package “will hopefully reduce the immediate risk of business collapse and job losses,” said Jamie Stewart, deputy director of the University of Strathclyde’s Centre for Energy Policy. “It should also limit the need for businesses to pass on costs through putting up prices on their goods and services and compounding already acute cost-of-living pressures.”

Business groups generally welcomed the announcement, but some raised concerns about whether the aid would end abruptly after six months. The government said it would hold a review after three months.

Business owners like Sutton-Jones complained that relief has been too slow to arrive.

“There is no backdating, so essentially we cannot benefit fully from the support package, and many employers will be forced to shut,” she said. “What happens to the huge debt many businesses have already racked up?”

The Federation of Small Businesses shared the concern and urged a hardship fund for companies that fall through the cracks.

The British Beer and Pub Association called the energy support “a lifeline for many pubs and brewers this winter.”

Britain’s famed pubs barely had time to recover from the pandemic before getting hit with supply chain problems, labor shortages and across-the-board price increases that, combined with sky-high energy bills, has “for many businesses, more than wiped out their total net income,” seven pub, brewing and hospitality groups said last week in a letter to the U.K. finance chief.

At the King’s Head pub in northern England, rising electricity prices forced manager Cherylanne Lowther to stop serving food on some days because it’s too costly to operate the kitchen’s energy-guzzling oven, double boiler, three deep fryers and dishwasher.

She said her latest electric bill jumped to 800 pounds a month from the usual 500 and had been set to double to 1,600 pounds.

Even if the new government support keeps her bill at the previous level, “I couldn’t afford the 800,” Lowther said.

As winter approaches, she also is bracing for higher heating oil costs, saying kerosene for the pub’s outdated heating system “costs a fortune at the moment.”

On top of that, she has a contract with a brewing company that is raising alcohol prices just as customers in the village of Cockfield, saddled with their own rising costs, are staying home more often.

On some recent nights, she’s turned a profit of just 20 pounds.

Since she started running the pub 10 months ago, she’s burned through the reserve funds and now “there’s no money left to pay anything,” Lowther said.

“All the time I’ve been in the pub, I’ve never been able to take a wage,” said Lowther, who worries about going into debt.

Even a bigger pub operator, London-based chain Fuller, Smith and Turner Plc, said this week that energy costs for its 385 pubs have risen to “unprecedented levels.”

Without factoring in the U.K. government’s support measures, Fuller’s expects to spend 18 million pounds on gas and electricity this year, up from 8 million last year.

Small manufacturers are under pressure, too.

Exeter Charcoal has been forced to hike the price of its small mobile “retorts” — devices used to make charcoal by heating wood — by 3,000 pounds, to 17,450 pounds. Metal for the machines is cut with a precision laser by a nearby engineering firm.

“We’ve just taken a massive hit on the laser-cutting costs,” company director Robin Rawle said. The engineering firm’s “energy costs are going through the roof.”

Buyers include woodland owners, schools and local governments that have extra timber they can turn into charcoal to sell. But alongside rising labor and raw material costs, “the whole thing is getting beyond what most of our customers can afford,” Rawle said.

The company would be able to weather the crisis by making a smaller, cheaper version that’s proved popular, he said.

But Rawle worried that the government’s plan was fiscally irresponsible. Officials haven’t detailed how much the support package will cost, but it’s expected to be many billions of pounds.

“What Liz Truss is planning is, I find, particularly scary,” Rawle said. “The amount of money involved — all we’re doing is building up debt. And as a businessperson, you can’t really spend money you don’t have.”

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UK businesses laud energy relief, but costs still a struggle