Pubs Facing Closure Say The “Horse Has Already Bolted” On Energy Cost Damage To Industry
Many pubs are already taking on huge energy costs they cannot afford before the government announces any help this winter (Alamy)
Figures in the hospitality industry believe the government has left it too late to help bring pubs and restaurants facing closure over energy costs back from the brink this winter.
Many say they have already been locked into un-payable contracts that are making it impossible to run businesses as the cost of living crisis worsens.
The incoming prime minister, widely expected to be leadership frontrunner Liz Truss, has faced urgent calls to announce plans to cap gas and electricity costs for businesses, many of whom say they face closure this winter because they can’t afford to heat their venues or keep the lights on.
Domestic energy supplies are capped by the regulator Ofgem, but that does not extend to commercial premises, which have been hit by soaring wholesale costs impacted by Russia’s invasion of Ukraine.
But a number of businesses have told PoliticsHome that even if the energy price cap is extended to cover them, any decision made this autumn will not save those who have already had to renew their contracts in recent months, and have signed up to pay much higher prices.
“That's where a commercial cap in a way won't work because the horse has already bolted,” said Richard Hassell, managing director of the Ilsington Country House Hotel and Spa in Devon.
He explained that his own energy contract was up at the end of September, and he will go from paying 14 pence per unit to 63.6 pence, an increase of 323 per cent.
“It’s adding £130,000 to our costs,” Hassell added. “The real concern is just for a lot of businesses is surviving. We've been here 20 years and we can absorb it for a year, maybe two, but it's not going to be sustainable under any circumstances.”
He said the situation was “absolutely frightening”, and that his energy broker had told him that since he signed his new contract last Thursday, the market is already 20 per cent higher, so the situation for business still negotiating a deal for the next 12 months is going to be even harder.
“Covid is actually easy compared to this,” Hassell said.
He was scathing of the government's inaction on support for businesses in light of the energy crisis so far.
“It's all very well saying you can't solve every solution, but if you've got say 50 per cent of hospitality in the country going under, you have to deal with it,” he continued.
On Tuesday, the Ye Olde Fleece Inn pub in Kendal, tweeted that they have just been quoted £124,000 a year for their electricity bill from October.
“This is NOT sustainable for a small business, what is the answer?” they asked.
Sacha Lord, the nighttime economy adviser in Greater Manchester, is critical of the Tory leadership candidates Truss and Sunak for failing to set out how they would help hospitality businesses.
“We are just screaming for help, and I hate to use this phrase because I used it so many times over the last two and a half years, but we are now in the perfect storm,” Lord told PoliticsHome.
“By that I mean we've got the energy prices rocketing like we've never seen before, 18 per cent inflation, staffing issues."
He said Simon Wood, the former Masterchef winner who owns an eponymous restaurant in Manchester, told him that inflation had forced up prices so much that “the oil in his deep fat fryer at the moment is more expensive than unleaded petrol”.
Lord said he does not understand why there hasn't been an intervention already, and that promises by government that help is on its way will come “far too late”.
“I think the horse’s bolted,” he added. Conversations between the hospitality industry and ministers took place earlier this year as prices began to rise, but “since the whole leadership process began there's a wall that's just come right down, and no one's listening, no one's engaging,” Lord said.
Keith McAvoy, one of the founders of Seven Brothers Brewing in Manchester, said the cost of their raw materials is increasing by 30 per cent, and 50 per cent for packaging materials for their beer.
“There's only so much you can withstand as a business,” he told PoliticsHome.
While Seven Brothers Brewing has absorbed costs for a while, with energy prices rapidly rising at the bars they also own, the company is having to start passing those costs on to the consumer.
McAvoy is calling for the repayments of the Covid-19 loan schemes from the Treasury to be deferred until the energy crisis dissipates. While he believed the government did the best they could during the pandemic to help businesses survive, they've now “taken their eye off the ball, they think they've done enough, but really it is only the beginning”.
“I think the storm is about to hit, and I think it could be the hardest 18 months we have ever faced in this industry,” McAvoy added. The Labour MP Olivia Blake has become so concerned about what is happening to businesses in her Sheffield Hallam constituency that she wrote to the Business Secretary Kwasi Kwarteng this week to ask for an urgent support package for those struggling with “extortionate energy price hikes”.
She told PoliticsHome she fears the “domino effect” of businesses closing, with suppliers out of pocket, rising unemployment and further strain on charities and society.
“People are just opening their bills and wanting to know when is this going to end,” Blake added.
“It just seems to be hitting every single element of our economy at the moment and because we don't have the price cap for businesses, and we don't have a solution or support to help businesses who are struggling.
"I just don't know what the options are and what the government is thinking, which is exactly why I wrote this letter to try and promote a response in people thinking about this issue.”She said the government should not be holding back until a new PM is in place.
“That’s not really good enough and I think that there should be acting now," Blake continued.
"It's easier in a way for a leader to inherit something than to build something new, so I think that they could get on with it now and come up with a solution that would work and get cross-party support for that.”
The department for business, energy and industrial strategy said the domestic price cap was introduced because the Competition and Markets Authority identified that disengaged households were deliberately being charged excessive prices, but had not found evidence of this happening in the business sector.
They said the government had backed businesses of all sizes throughout the past few years with an unprecedented package of support including recent fuel duty and VAT cuts, business rates holidays and government backed loans worth around £400bn, and will continue to stand firmly behind them.
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