Consumers are set to see the average household energy bill rise to up to £3,549 from 1 October, 2022 as OFGEM (the Office of Gas and Electricity Markets) announced their quarterly price cap today.
With further bleak predictions of an even steeper rise to £5,386 in January by analysts Cornwall Insight, this will be a blow for SME building companies already hit by the soaring cost of materials, a skills shortage and the financial crisis causing a knock-on effect for demand. In the FMB’s most recent State of Trade survey, nearly 50% of FMB members* reported that the current economic climate has had a negative impact on their expected profits for Q2 of 2022.
With the cost increases filtered down to clients, there is a concern that consumer appetite for repair, maintenance and improvement (RMI) work will reduce, and that developers will find the cost of new builds prohibitive.
Why do we have an energy price cap?
The price cap, which places a limit on the amount you pay per unit of gas or electricity, was originally introduced to make sure consumers get a fair price for their energy. It ensures any drop in wholesale prices is reflected in consumer tariffs. From this August, the price cap will be reviewed quarterly rather than every six months – to help consumers manage changes and to stabilise the market.
Energy customers on standard tariffs will see an increase in their electricity costs from 28p/kWh to 52p/kWh, and from 7p/kWh to 15p/kWh for the cost of gas.
Why are prices shooting up?
This unprecedented increase in energy prices is the result of a 'perfect storm' of bad conditions. Firstly, the global demand spike following a succession of COVID-19 pandemic lockdowns over the past two years. Secondly, Russia's war with Ukraine has 'weaponised' the wholesale price of gas - Russia being a significant global producer of natural gas and many European economies being highly dependent on their pipelines. Change is happening at pace to reduce our reliance on Russia and to become more self sufficient for energy, but it's something that the UK has not invested in well over the past decades.
Help for SME builders affected by the energy crisis
While today's price cap is set to see domestic energy bills rise astronomically, there is of course no equivalent limit for businesses. With already fine margins, we know that any further cost rises are going to be particularly painful for small builders. The FMB is working with the Federation of Small Businesses to lobby the Treasury for targeted support. This includes on the need to recognise that input price inflation has now reached 19%, interest on debt is growing, and the consequences of a rise in late payments and inflexible contracts. Organisations like the British Chambers of Commerce are also calling for a VAT cut in energy bills to support small businesses.
You may notice a reduction in the volume of business coming through your door. But even in these troubled times, there is opportunity out there and new areas of growth where you can carve out a niche for your business.
The best way to lower bills, is to use less energy by making homes less leaky and more efficient. Now is the time to train in retrofit, as appetite for homeowners to make their homes more thermally efficient becomes a growth opportunity, further buoyed by UK Government’s commitment to reach net zero carbon emissions by 2050.
Reaching net zero relies on bringing the UK’s existing housing stock up to a high level of energy efficiency, which can only be achieved though educating homeowners about the benefits and savings of installing retrofit measures when they make improvements to their homes – something SME construction firms are uniquely placed to do.
The FMB is campaigning for a national retrofit strategy and investment in skills and training to deliver this – find out more on our retrofit campaign page. FMB Chief Executive Brian Berry has called on the next Prime Minister to back a National Retrofit Strategy, and to support a temporary cut in VAT on all RMI work, to help support demand for new work.
Practical help on finance and mental health
If you’re directly affected by the increase in energy tariffs, the FMB offer financial advice to our members though our dedicated financial helpline – which you can find by logging into the FMB website and viewing the Resources page. Our advisors can offer help if you’re facing a struggle, have cash-flow issues or are looking for advice to prevent liquidation.
Our charity partner, the Lighthouse Club offer free and confidential support services to all in the construction industry, including emergency financial aid to construction families in crisis, advice on welfare and mental health wellbeing and support of legal, tax and debt management matters. Call them on 0345 605 1956 or download the free app, which provides help and guidance on wellbeing issues including stress, anxiety and depression.
* FMB State of Trade Survey, Q2 2022 – based on response from 296 FMB member companies, weighted by number of employees.
