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Energy prices are the biggest threat Kent companies have ever faced, says Professor Richard Scase

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The government’s announcement this week of a six-month cap on energy costs for businesses will provide some relief to businesses under pressure. But Professor Richard Scase warns that the impact of rising prices will be felt particularly acutely in Kent…

Uncertainty and rising international energy prices are perhaps the greatest threat Kent businesses have ever faced.

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They are much larger than those created by the pandemic. In it, there was a level of certainty that the current energy crisis does not provide. Lockdowns forced businesses to close, and the government was able to ensure their survival through furloughs and other reasonable across-the-board subsidies.

In the current energy crisis this is not possible. Due to the diversity of business types, sizes and economic sectors, a great many different solutions and policies have to be developed. This is why the government has forced him to postpone the details of his business bailout plan until November, but the bailout he will be backed up to October 1st.

The Energy Bill Relief Scheme applies to all companies and is reviewed after three months. Then, after the six-month planning ends in March 2023, the most vulnerable businesses will be identified and asked for further support. This includes the most vulnerable businesses such as pubs, shops and other local traders. The bailout scheme cuts in half the amount businesses are expected to pay in future general tariffs. It provides a lifeline for many energy-intensive businesses. However, providing such a “blanket” scheme for the large and diverse small and medium business sector will cost taxpayers money, as many of them are less energy intensive and highly profitable. means to make a profit.

However, the duration of the support system is also problematic. Six months is not enough for most companies. The time frame for planning and decision-making is too short. What about energy costs? What will government support look like? Which business owner decides to invest in new technology, seek out new market opportunities, and hire staff?

As a result, small business growth has stalled, job opportunities have declined, and, arguably, would-be entrepreneurs put their business ideas on hold. The impact will be particularly felt in Kent, which has a predominantly Small and Medium Enterprise (SME) economy. All the more so because of its focus on the hospitality, social care and horticulture sectors. These are all high energy users with consumption levels that cannot be easily reduced without destroying business viability.

Business expert Richard Scase is Professor Emeritus at the University of Kent.
Business expert Richard Scase is Professor Emeritus at the University of Kent.

Unlike large companies, SMEs cannot “pass on” increased cost structures by presenting prices to customers. At best, they operate at borderline profit margins, and even small cost increases can undermine them.

Especially in a sector where SMEs are an integral part of the business supply chain when contracts are negotiated over a period of 12 months or longer. Large companies are unlikely to renegotiate contracts to support or profit from smaller contract supply when their own profit margins are at stake. Yes, I understand their position. But contract renegotiation, sorry, no.

One of the major challenges faced by governments in implementing energy bailout schemes is to address the fact that most companies negotiate energy contracts with their suppliers on a one- or two-year basis. But the proposed scheme is only for 6 months. Each contract must be reviewed. Where are the government resources to do this?

The government has clearly decided that the future of energy prices is unpredictable (understandably) and likely short term. However, most energy experts seem to believe that this is a long-term problem and should be treated as such by both governments and businesses.

The view of these experts is that this will be the case until the UK is freed from the vagaries of global energy pricing markets and achieves national self-sufficiency. How many years will it take to plan and build a nuclear power plant? Will a green agenda prevent fracking and even the reopening of coalfields? No wind blowing through the blades of sea wind farms off Herne Bay and Margate What happens with

Kentish Flats offshore wind farm located offshore Herne Bay and Whitstable.Photo: Peter Gainey
Kentish Flats offshore wind farm located offshore Herne Bay and Whitstable.Photo: Peter Gainey

A natural utility called “energy” has suddenly become a major business strategic issue. Business problems today, unlike most planning and decision-making, are filled with uncertainty and are beyond our control.

Could we have predicted this? Some experts have seen writing on walls for years. But that’s not reassuring today for small business owners who have just survived the challenges of the Covid pandemic and whose livelihoods are already under threat.

Richard Scase is Professor Emeritus at the University of Kent and Visiting Professor at the University of Canterbury Christ Church. He lectures around the world on social, economic and business trends.