Small talk: Powers that be must help small firms fight energy bills rip-off
Cash-strapped households aren't alone in facing excessive energy bills – but while regulators such as Ofgem are now taking action on behalf of consumers paying too much for gas and electricity, small businesses have had much more limited support.
Rising energy bills have been an ever-more painful headache for businesses of all sizes over the past few years. Tata Steel warned last week that the cost of its energy in the UK is now so high it is struggling to compete with rivals in continental Europe, where it claims bills are 50 per cent lower.
However, for small businesses, the issue is especially acute, as energy bills often account for a disproportionate part of their costs. The average SME pays an annual energy bill of £8,000, around 9 per cent of their cost base. One of the problems, says Saurav Chopra, the chief executive of Huddlebuy, a deals site targeted at businesses, is sharp practice that energy companies wouldn't get away with in the consumer sector. Energy providers routinely offer discounted deals to attract new customers, subsequently rolling them over into uncompetitive contracts with only very short windows of opportunity to opt out.
"There's no nice way of saying this but energy companies are taking advantage of small businesses by making billing opaque and switching complex," says Doug Richard, the SME owner and former Dragons' Den judge.
Mr Richard is supporting an initiative launched today by Huddlebuy and Make it Cheaper, the price comparison site for businesses. Its Great Business Power Cut campaign is an attempt to get small businesses to team up in order to secure better deals from the power giants. "Small businesses are paying through the nose when it comes to their energy bills," Mr Chopra says. "They are getting ripped off."
Clearly, Huddlebuy and Make it Cheaper have a vested interest. But regulators have been less focused on soaring energy bills in the SME sector at a time when the authorities from the Energy Minister down have been increasingly vocal about consumer detriment. Even the Energy Ombudsman will only accept complaints from the very smallest businesses.
Meanwhile, energy-industry specialists say that the efficiencies available to SMEs that do their homework are really worthwhile. "The savings possible are huge," says Martin Lewis of the Money Saving Expert personal finance website. "For a sample postcode we tried in the North-west of England on an annual electricity bill of £3,500 using the regional electricity company, it was possible to cut the bill to £2,300, a saving of £1,200."
Mr Lewis recommends small business-focused comparison services such as UK Power, the Business Advisory Service and Make it Cheaper as a good place to start for SMEs looking to cut their energy bills.
Still, business contracts tend to be more opaque than in the consumer sector and often lock customers in. To really tackle that, tougher regulatory action may be needed. Ofgem said in November it was considering enforcement action against suppliers preventing business customers from switching through unfair contract terms. We're still waiting.
Bluehone loan arranger
One man's problem is another's opportunity. Enter Bluehone Secured Assets, which thinks there's money to be made from the shortage of funding for Britain's smaller companies, and today unveils details of a new issue in which it will look for up to £40m from retail and institutional clients.
The money will be used to make secured loans to SMEs assessed as good risks. It will make five-year loans of between £1m and £3m, charging a rate of Libor plus 4 per cent. If all goes to plan, Bluehone's investors get a decent yield plus the prospect of capital growth. The latter comes from the warrants Bluehone will insist its borrowers issue to the company.
The clincher will be the quality of the firms it lends to. To make that yield target, it needs to avoid defaults, and its borrowers' businesses must grow if the warrants are to have any value.
Incentive for Intercede boss under attack
Another day, another corporate governance row on the Alternative Investment Market.
The latest company in the firing line is Intercede – one of Britain's more successful technology start-ups – which has run into trouble with one of its shareholders.
Roger Lawson, an investor in the company – and also chairman of ShareSoc, a pressure group representing private investors – claims its long-term incentive plan "demonstrates many of the aspects that are abhorrent in the current system of remuneration in public companies".
What's got Mr Lawson's goat is a plan that pays out several hundred thousand pounds' worth of share options – each one priced at a nominal value of 1p – to Intercede founder and executive chairman Richard Parris in three years' time, assuming the business's earnings per share growth outstrips inflation by 5 per cent over that term.
Mr Lawson calls the award a "disguised pay increase" and says the company ignored shareholders' concerns about it.
Intercede is having none of that. "The package was properly approved by the Remuneration Committee, who did engage with key shareholders," a spokesman says.
"Intercede's management has done an outstanding job in growing the company."
That's true enough – the company is a genuine British success story. Still, Intercede has breached corporate governance guidelines, like too many of itsAIM contemporaries.
Small businessman of the week: Broadband needs tackled at high speed
Boris Ivanovic, founder and chairman of broadband provider Hyperoptic
Our model is to respond to customers' needs in a way that incumbent providers don't and can't – they are generally very slow to offer new services for which there is customer demand because they're worried about cannibalising their existing customer base.
People want a high-speed service, not to be lagging behind the rest of the world, but Britain currently ranks 25th on speed of broadband and is slipping down the rankings all the time.
The technology exists to provide broadband access that's 150 times' faster than currently available and there's no reason not to do it in the UK. Each time we've done that, people have asked me whether there really is a need for such speed, but partly it's chicken and egg – if you provide the speed, there will be applications developed to exploit it. Interestingly, the demand is more from consumers than business, because the applications individuals use tend to require more bandwidth."
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