"Influx" of Businesses Insolvencies Predicted as Energy Price Support is Scaled Back

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The government's decision to withdraw energy bill support will deal a "huge blow" to UK businesses that will result in a spike of insolvencies, says an insolvency expert.

The government has announced its energy support scheme for businesses will be significantly reduced as of April, heaping more pain on businesses which are already buckling under a bigger energy price burden than competitors in peer countries.

"News that the government will be reducing support for businesses will come as a huge blow for firms across the UK," says Owen Bassett, underwriter manager at Atradius UK, an insolvency specialist.

Under the new scheme, firms will get a discount on wholesale prices rather than costs being capped as under the current one.

Wholesale gas prices are now below the level they were before Russia's invasion, but are still up to four times higher than pre-2021 long-term averages.

"For many, what is being offered simply will not be sustainable," says Bassett.

Atradius says their own claims data indicates businesses are already struggling, with a 41% average increase in payment delays or failures reported in the second half of 2022.

"The reality many businesses now face is that it will no longer be possible, or profitable, to continue trading, an influx of insolvencies in the months ahead is almost certainly inevitable," says Bassett.

The government says carrying on the energy support package at existing levels was not viable with the OBR saying the package would cost the government £18BN.

However, it is claimed the UK government's long-term energy policies already place UK businesses at a severe disadvantage to those operating in other European countries.

"The UK government imposes a higher emissions tax on big energy using industries than competitor economies do. This is making UK closures and job losses more likely with yet more reliance on imports from high carbon countries," says Conservative MP, John Redwood.

Ed Conway, Data and Economics Editor at Sky News, says even before the gas price spike UK businesses faced some of the highest energy costs in Europe.

"When it came to how they paid for the costs of making the grid greener, many European nations (Germany the obvious example) passed most of the cost to households. The UK added the cost to businesses' bills," says Conway.

He adds that this alone is one of the most important explanations for why the UK has deindustrialised quicker than nearly everywhere else.

"If it's far more expensive to run a glass furnace in the UK than in Germany or elsewhere, why locate here?" asks Conway.