Thursday, March 28, 2024

Managing energy price hikes, more than hot air in the Boardroom? By James Pinchbeck, partner at Streets Chartered Accountants

James Pinchbeck, partner at Streets Chartered Accountants, considers the effect of energy price hikes on businesses and what can be done to manage the situation.

Whilst the Spring invariably brings warmer weather and lighter days, this year it is unlikely to help businesses weather the storm of unprecedented price hikes in the cost of energy. According to a recent Policy Voice Survey by the Institute of Directors, over 53% of its members surveyed indicated that the cost of energy was and continues to exert a negative impact on their organisation.

The energy price hikes have come at a time when there seems to have been a perfect storm with Brexit and the pandemic leading to unprecedented disruption to businesses, with rising costs particularly as a result of labour shortages and supply chain issues and in many cases a lockdown loss of revenue. Whilst some may have been able to pass on such cost increases, for many this has not been the case having to absorb them with a loss of margin.

Businesses are no doubt feeling a bit weather beaten with what seems the exponential increases in energy yet another disruption or problem that is adding to the domino effect of challenges faced.

The average household is likely to face an increase in their annual energy bill of around £700 in light of the 54% increase in prices. When it comes to businesses, the annual bills for the average small business will increase from £1,150 to £1,725 and for the average medium sized business from £1,860 to £2,864. Many businesses though, depending on what they do, for example those engaged in manufacturing or processing, are set to see in real terms much larger bills.

Whilst the first approach to dealing with the situation may be to see if you can seek a cheaper supplier, this is unlikely, given the state of the market, to yield results. For those on contract with their energy supplier, whilst their current deal may be favourable, they should prepare for hikes on renewal.

Managing the situation really needs a more strategic approach, starting with an in depth understanding, even audit of your energy consumption. Such information can then be used to determine steps and approaches to reducing consumption and becoming more energy efficient. This may include greater use of more energy efficient equipment, changes in staff attitudes and approaches and working practices through to installing new energy generation technology.

Quick and simple short-term measures, though, may not achieve the results required, not least in terms of achieving security or certainty around the supply and cost of your energy. You may then look to capitalise on the tax reliefs included in the Spring Statement and prior Budgets to support those looking at investing in green technologies and alternative energy sources.

Those looking to install heat pumps, solar panels or wind turbines can benefit from a removal of the 5% VAT levy on the cost of such installations.

The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage and a 100% relief for eligible low-carbon heat networks with their own rates bill. It was announced in the Spring Statement that these measures will now take effect from April 2022, a year earlier than previously planned.

Businesses investing or incurring expenditure in energy saving or environmentally beneficial technologies can look to benefit from the enhanced capital allowances. The extension to the temporary increase in the Annual Investment Allowance (AIA) to 31 March 2023 allows 100% tax relief to businesses investing up to £1 million in qualifying expenditure.

Help may also be available from your energy company with many offering schemes or grants to help improve business energy efficiency, which can reduce costs; for example, subsidies on the upfront costs for more energy-efficient equipment.

The cost of investing in new technologies could also be financed, with some funders and banks like Natwest offering ‘Green Loans’ and ‘Green Asset Finance’.

Finally, food for thought, perhaps the increase in energy prices may see more and more of those who have either opted for hybrid or home working return to their employer’s place of work as they seek to manage their domestic bills.

 

See this column in the May edition of East Midlands Business Link Magazine.

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemic having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £33.60 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.









Latest news

Related news

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close