slot machine rental-Energy crisis: Tens of thousands of firms 'face collapse' without bills help

A Liberty Steel workerImage source, Liberty Steel

Tens of thousands of businesses are at risk of going under without government support because of soaring energy bills, according to insolvency experts.

Red Flag Alert, which monitors the financial health of firms, told the BBC previously profitable companies are experiencing significant losses.

Among those that survive, many will be forced to make workers redundant, the consultancy said.

Firms are waiting to hear if they will get help with their energy bills.

On Thursday the government, led by new prime minister, Liz Truss, is expected to announce significant financial support for households facing an 80% rise in the energy price cap in October.

Businesses are not covered by the cap, however, and Red Flag is warning that more than 75,000 larger firms that are high energy users are at risk of insolvency or are likely to lay off staff without government support.

The government's plan is expected to include some relief for businesses - but details are not yet known.

According to Red Flag, many firms will face a choice between paying wages or paying energy bills.

"Businesses can't absorb these costs and they're going to be forced very quickly into a decision about headcount or being able to pay energy bills," said chief economist Nicola Headlam. "That's going to be the reality and it's coming down the track very quickly."

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According to Red Flag Alert, there are 355,000 companies with a turnover higher than £1m that are designated as high energy users - industries such as steel, glass, concrete, and paper production. Of those, the company estimates 75,972 are at risk of insolvency, and they estimate 26,720 of them could fail because of energy costs. That's in addition to the 26,000 insolvencies they'd already predicted this year.

"That is a colossal number of people whose businesses will fail, without a large scale support package from the government", said Ms Headlam. "That's more than during the pandemic, and more than in any other recession.

"A business turning over a million pounds two years ago would have spent around 8% of that on energy costs and made profits of around £90,000.

"If the cost of energy doubles to 16%, that instantly wipes out profitability, and they're straight into a scenario where it threatens the viability of the business within a year."

Beyond the large, energy intensive companies, smaller companies with turnover under £1m, were also at risk of failure, Red Flag Alert said. It highlighted the hospitality sector where firms face a triple threat of increasing energy bills, higher supply and staffing costs, and a fall-off in consumer spending, squeezed by inflation.

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