Former chancellor Alistair Darling has warned that soaring energy costs could be the “last straw” that breaks the back of small enterprises.
During the financial crisis, Mr. Darling, who was Labour’s chancellor, stated that “strong action” was required to help the economy.
The household energy price cap will increase by 80% in October.
However, enterprises are not covered by the cap, and Mr. Darling stated that after surviving Covid, energy costs might put them out of business.
Mr. Darling called the current scenario a “lethal cocktail” and stated that the government must take “strong action”
Liz Truss and Rishi Sunak, contenders for the leadership of the Conservative Party, are under pressure to specify more support for consumers and businesses in the wake of the announcement that energy bills will increase again this autumn. Next Monday, the successor to Prime Minister Boris Johnson will be named.
Ms. Truss has thus far confirmed that she will reduce National Insurance and green taxes. As part of a £10 billion package, Mr. Sunak has suggested tax reductions on energy bills.
It was revealed over the weekend that Ms. Truss is considering a “nuclear” option of lowering the VAT by 5% and boosting the tax threshold.
In May, the government promised £37 billion in cost-of-living assistance for households.
However, Mr. Darling stated on BBC’s Today that the government must offer greater support.
“You must announce it immediately,” he added. “Frankly, the things that have been announced thus far could have passed inspection earlier in the year, but they simply won’t cut it now; you need something far more significant.”
Mr. Darling stated that [the cost of electricity] may be the final straw that breaks the camel’s back for a great number of companies, especially the smaller ones who have been dealing with the Covid problems for the past few years.
He stated, “I fear that if the government does nothing, not only will there be a difficulty for individuals and businesses, but people’s spending would decrease as well.
“One thing I learned from the events of 2008 is that you must do more than people think and do it faster than they expect if you want it to succeed.”
As the chancellor has made clear, the Treasury is “making the necessary preparations to ensure a new administration has choices to give more support as swiftly as possible,” according to a Treasury spokesperson.
They said, “And as the prime minister has made clear, no major fiscal choices will be made until the new prime minister is in place.”
Friday, the energy regulator Ofgem announced a price cap increase. In October, a typical home will pay £3,549 annually for gas and electricity, up from the present rate of £1,974. Moreover, several economists have warned that this number could climb much further.
Russia’s invasion of Ukraine and the Kremlin’s resolve to stifle energy supplies to Europe have exacerbated the rise in wholesale gas prices, which have been on the rise since last year.
Multiple industries’ small firms have expressed concern over growing energy costs.
In an open letter, more than 750 restaurant and café owners requested support in the form of VAT reductions, grants, and business rate rebates from the government and candidates for the Conservative leadership.
“Previously, the government has waited until the last minute to act, but that cannot happen now. Before it’s too late, it must collaborate with the Conservative leadership candidates on a plan to protect Britain’s smaller restaurants, according to the chairman of the British Takeaway Campaign, Ibrahim Dogus.
Jon Long, who owns and operates five fish and chip shops in Dorset, told that if he had to pay the current market cost for gas and electricity, his firm, which has been in his family for four generations, would be forced to close.
He was able to secure a two-year contract with his energy provider to fix his gas and electric costs for 2021, but many businesses are not in his situation.
“What appeared exorbitant at the time now seems like a steal,” he said.
Currently, the 59-year-average old’s annual bill per store is approximately £15,000, but based on current wholesale prices, it would cost him up to £80,000.
“We are on the offensive here. “There has been much conversation, a great deal of sympathy, and the administration has been listening, but no action has been taken,” he said.
Firms breaking out of contracts require immediate and drastic assistance, otherwise, we risk losing thousands of formerly viable businesses.
The Bank of England has issued a warning that the British economy would enter a recession later this year due to the impact of rising energy prices on inflation. It recently increased interest rates by 0.5%, the largest increase in 27 years, to curb soaring consumer prices, which reached 10.1% in July.
Mr. Darling stated that the 2008 financial crisis was distinct from the present economic climate, but warned that the current situation is “just as hazardous to individuals and the economy as the 2008 financial catastrophe was.”
“This will not just affect those with low earnings, but also those with higher incomes,” he stated.
