The Government increasingly recognises that high and unavoidable fixed costs are holding many small businesses back – hence the further help offered on business rates in the Budget. But having assisted with one of the two biggest costs for many small firms, what can it do to mitigate the other one – their rising energy bills?
By that, I mean not so much the costs of production – where the Budget freeze on the carbon price floor will make a significant difference to manufacturers – but the gas and electricity bills faced by every small business in their day-to-day operations.
The Competition and Markets Authority investigation of the energy industry, announced last week, represents a fantastic opportunity to tackle this problem.
In referring the sector to the CMA, the regulator, Ofgem, published an extensive assessment of the state of the market that reveals just how badly many small businesses are being served by their energy suppliers. For example, the smallest firms are paying almost twice as much for their gas as the largest customers. They have also seen their bills increase far more steeply over the past three years.
In fact, gas prices for large companies have stayed pretty constant since the beginning of 2011. Smaller businesses, by contrast, have suffered percentage increases in the double digits – and the smaller the company, the larger the hikes seem to have been.
Ofgem also cited research revealing that customer satisfaction levels with energy companies among smaller businesses are far more likely to be lower. In addition, small businesses are more likely to complain that the complexities of switching provider make it hard for them to source better deals. On average, they’re twice as likely as larger businesses to describe switching as difficult, and they are correspondingly less likely to have ever moved to a different supplier.
It is to be hoped that the CMA reads with great care the tiny section of Ofgem’s report that is devoted to small businesses. They need just as much help with securing a better deal from the energy sector as consumers, yet their needs are invariably forgotten during these investigations.
Take the thorny issue of rollover contracts, the arrangements under which small businesses are automatically moved on to a new contract, with penalties for early exit, when their existing contract comes to an end – unless they take action during a short period.
Small businesses have been complaining about this practice for years because it makes it so much harder to shop around for the best deal, but regulators have always refused to outlaw automatic rollovers.
Some progress on this specific issue is now finally being made. E.ON announced last week that it will scrap rollover contracts for both new and existing customers, while British Gas has done the same for those in the first of these categories (existing customers can ask for the same treatment). But it has taken constant pressure from small business groups, as well as public naming and shaming, to extract these concessions.
How might the CMA address the interests of small businesses? The simplest solution would be to adopt the approach taken in the communications sector, where legislation 10 years ago in effect required industry regulators to treat the smallest businesses – generally those with fewer than five employees – as consumers unless there are clear reasons not to. At a stroke, those businesses covered won access to the same rights as individuals.
There may be an argument to be had about how small a small business should have to be in order to qualify for this preferential treatment, but the communications example is a sensible one to follow.
In other competition inquiries – notably into banking – small firms have missed out on the benefits of important reforms. Given the high and rising cost of their bills, it would be unfortunate to repeat such a mistake in the energy sector.
Things are hotting up for this company
If you can’t wait for the energy regulator’s investigation into the sector to produce some results (and don’t hold your breath), maybe PassivSystems is the company for you. It sells technology that gives consumers and businesses much greater control over the heating and water systems in their properties, as well as to manage solar installations for those who have them. It claims its tools can cut consumers’ bills by an average of 23 per cent.
The company, based in Newbury, will announce today that it plans to float on the Alternative Investment Market next month, hoping to raise up to £12m of new funds in a deal that would value the company at up to £45m.
Despite the obvious appeal of its technology, PassivSystems has yet to turn a profit – it lost £4.3m on sales of £3.5m last year, as it continued to invest in product development. Nevertheless, the company boasts a diversified and increasing revenue stream, including valuable contract work, with an impressive management team – including chairman Sir Roy Gardner, former chief executive of Big Six energy company Centrica.
Theme park firm’s float is just the ticket
If you’ve ever been to a theme park or water park in China, chances are you’ve used the services of Galasys, which supplies ticket management services to around three-quarters of them, as well as to similar outlets in Malaysia, its home country. Now Galasys is coming to the UK – it will today declare its intention to float on the Alternative Investment Market, in an IPO it hopes will raise £7m.
Galasys needs the funding to step up its expansion plans in Asia, both of its existing services to theme parks and the roll-out of new products and services that will enhance revenues for existing customers and new clients. It also has ambitious plans that go beyond Asia, with a move into the UK now in its sights.
This is a competitive marketplace with a number of global providers, but Galasys is betting on the quality of its technology to differentiate itself – and it also has long-standing relationships with many clients that would be expensive and disruptive to replace. It is is also in the black, having posted a profit of £1.3m for the year to 31 December.
Small Business Person of the Week: Owen Geddes, CEO, Appflare
“We launched our business two years ago, advising mobile phone companies on how they could work with the retail trade. Then last summer Apple launched iBeacon and we realised it had huge potential for our business. It’s an indoor positioning system that can communicate with customers’ phones as they come into a store and journey round it.
“That’s transformed our business. We still do the consultancy but we can now provide retailers and other organisations with a complete managed service, installing the hardware and the software in their stores and managing the system. The idea is to send push notifications to people’s phones – you get their attention with special offers as they walk into the store, and since the equipment can identify where they are to within a square metre you can also send them messages when they linger in a particular aisle.
“The system will also be valuable in providing retailers with far more data on how customers move through their stores. But we’re very clear that retailers will have to tell people they’re tracking them and offer some value in return.
“We’re in a fantastic position because we’re the only company able to exploit this technology in the UK. We’ve just done a deal with a leading grocery and convenience chain that will really enable us to explore what is possible.”