The Federation of Small Businesses (FSB) has called for the energy regulator Ofgem to take action on the standing charges paid by small businesses such as independent stores, as many have seen the daily fixed price they pay, regardless of usage levels, soar over recent months.
Small businesses do not see the same protection, such as an energy price cap, that households do, and the FSB has found that some independent companies suspect they are a “soft target” for price hikes in standing charges. Small stores have been found to particularly struggling without support.
FSB has written a letter to Ofgem’s chief executive Jonathan Brearley, asking he recognise the “specific, negative impact standing charges are having on small firms”.
FSB’s policy chair, Tina McKenzie, commented: “ “We want Ofgem to do a thorough review of standing charges for businesses as well as consumers, for better transparency and to discern whether energy companies are behaving fairly towards their small firm clients.
“Many small businesses could be forgiven for suspecting that they have been seen as something of a soft target for price hikes in their standing charges, and they do not have a full picture of where the money they pay on a daily basis is going – something that needs to change.
“Small firms were put through the wringer by the energy price crisis, which sadly spelled the end for many otherwise viable businesses who saw their utility bills become completely unmanageable.
“The price increases which led to the crisis have thankfully eased off to an extent, but many thousands of small firms are now stuck on tariffs which are far higher than before, which is a leading driver of cost increases.”
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The call for action follows a number of ministers sending a letter to Ofgem at the end of March, which highlighted that the MPs wish to “ensure that bills are fair and affordable for all consumers”.
McKenzie continued: ““Small business energy customers behave in a way more akin to consumers than big businesses, lacking the resources, the expertise, and the buying power necessary to get the best possible deal out of their energy suppliers. However, they do not benefit from anything like the same level of protection as that rightly available to households.”
FSB is asking Ofgem to investigate the impact of high standing charges for small business customers, with small businesses based in rural areas found to be disproportionately affected by standing charge increases.
FSB found that one small firm reported an increase in its daily standing charge from 70.94p per day in July 2021 to 969.64p per day in September 2023 – more than 13 times higher.
Standing charges are used to fund network infrastructure, operating costs, and policy costs for schemes such as the Warm Home Discount, but this can be difficult for small shops to cover.
The ministers’ letter also points out that as a result of the charges, businesses are disincentivized from creating sustainability targets, and underlines the need for greater transparency around what standing charges are actually used to fund.
McKenzie added: “We’re very keen to hear what Ofgem’s next steps in this area will be, to ensure that small firms pay standing charges that are fair and transparent, no matter where they’re based.”
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