Number of Scots firms going bust rises by 30 per cent as energy costs soar

Some 105 companies were made insolvent in Scotland last month, the highest monthly figure since the start of 2019. It is 33% higher than the August before Covid, in 2019.

The Scottish Chambers of Commerce have warned that companies will remain at risk despite government moves to bring in a six month cap on gas and electricity bills from October 1.

They say that the level of insolvencies laid bare the "severe danger" of soaring costs to businesses.They are concerned that there is more pain to be felt, saying a government bid to fix bills for UK business is not enough.

The business group says that more and more Scottish business were tell them they face financial ruin in the face of the cost of doing business now, than they did during the pandemic due to "unsustainable rises in costs across the board."

And they say the issues could spike after March, when the scheme ends and put firms already on the brink out of business.

The UK government scheme to fix gas and electricity prices for companies, estimated to cost around 25bn, will be for six months from October 1, and is part of a bid to stop firms facing soaring costs from going bust.

It is understood the scheme for businesses will be reviewed after three months with an option to extend support for "vulnerable businesses" - but it is not known what sectors come under the category.

The SCC said the support package was welcome but firms still remain in trouble.

Charandeep Singh, deputy chief executive of the SCC, said: “We have seen the damaging effects that rising energy bills have had on Scottish businesses this year, with insolvencies having increased significantly in the first nine months of this year compared to last year.

“The time limited support for businesses of six months is far too short. This period is not enough for firms to be sufficiently reassured that the problem won’t return when the cap is no longer in effect.

“In fact, businesses are concerned that even more sudden rises in energy bills will await them once the cap is lifted. Without substantial support for a longer period, firms face uncertainty, particularly for those in sectors such as hospitality and manufacturing.

“The cost emergency has the potential to outdo the Covid-19 pandemic in terms of long-term damage to the economy. As more and more evidence of this comes to light, the call to government for greater support has never been more urgent.”

The business support comes after ministers announced a £150bn plan to help households with their soaring bills for two years, as the average annual duel fuel price cap imposed by market regulator Ofgem soared from £1,971 in April to £3,549 on October 1.

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The freeze comes in addition to the announced £400 energy bills discount for all households.

The Liz Truss price freeze fixes the cap at £2,500 for the next two years from October - in a support package expected to total more than £100bn.

With the discount, that means households will on average be paying £829-a-year (65%) more that last winter, when the cap was at £1271.

It is believed the government has followed a plan championed by ScottishPower head Keith Anderson who has insisted there need to be a government-backed superfund from which they could borrow to subsidise bills.

He indicated the fund could be paid off by the rest of customers who can afford their bills or the government could partially fund it.

But Ms Truss has been adamant that another windfall tax on energy firms would not be introduced, claiming that it would deter investment.

Unlike households, businesses are not covered by an energy price cap, which is the maximum amount a supplier can charge for energy. It means non-domestic bills have soared even higher..

But now wholesale prices are expected to be fixed for all non-domestic energy customers at £211 per MWh for electricity and £75 per MWh for gas.

Independent analysts Cornwall Insight said this marked a "substantial" 45% discount on wholesale energy prices at the end of last week.

The government said the scheme would apply to companies which had agreed fixed deals at higher prices on or after April 1, when energy bills started to surge. Those on variable and flexible tariffs will also be eligible.

Companies do not need to contact suppliers as the discount will automatically be applied to their bills, with savings seen from October but received from November.

Liz Cameron, chief executive of the SCC said Scots businesses have faced "unsustainable" energy bills for most of this year, which had already forced some out of business altogether with many more on the brink.

And she said the UK government had to engage immediately with the business community to "properly define" the vulnerable industries that are cited for support after the original six-month cap.

“The support will come as a significant relief for those latter firms, who were facing imminent closure without support, ahead of winter where energy cost and demand will be at their highest," she said.

“However, for those firms that will benefit, the six-month cap is not enough for them to be sufficiently reassured that the problem won’t return when the cap is no longer in effect. We are concerned that even more sudden rises in energy bills will await firms once the cap is lifted.

“Scottish businesses that will still struggle to pay their energy bills despite this support, now need the chancellor to outline further support for them in Friday’s mini-budget.

“Once this is delivered, the Scottish Government must move quickly to produce an emergency budget of their own with equivalent support and maintain alignment on policies such as taxation.” Government officials have not said how much the package will cost the taxpayer, as it will depend on what happens to wholesale market prices between October and April, when the support expires.

Cornwall Insight estimates the cost at around £25bn.

The Prime Minister said: "I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods.

"As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.

"At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all."