Great news for energy company customers, right? Npower’s announcement on Friday of a cut in its gas prices means four of the big six energy providers have now promised lower bills since the beginning of the year. Only EDF and Scottish & Southern are still to show their hands.
However, if you’re keeping an eye on the overheads of a small business, don’t get too excited about these reductions: your margins won’t be improving any time soon. That’s because these high-profile energy price cuts only apply to the standard tariffs that the energy companies offer to their household customers. If you run a business that buys its energy from one of the big six, you won’t be getting a share of the spoils.
How do the energy companies get away with shutting small businesses out of the benefits that all customers should be feeling following the sharp decline in gas and electricity prices on wholesale markets? Quite simply because they can. It is household bills that get all the headlines – and Ofgem, the energy sector regulator, doesn’t do anything to force providers to offer the best prices to all their customers.
Mike Cherry, national policy chairman of the Federation of Small Business, thinks this is deeply unfair to his members, many of whom complain that energy bills are their single biggest cost. “Members frequently say the cost of energy is a make-or-break issue,” he says. “There is far less transparency around pricing in the business market, making it hard for small firms to know if they’re getting the best deal.”
Mr Cherry is right, of course. The energy giants long ago realised that their small business customers were a soft touch, lacking either the financial muscle of large corporates or the regulatory protection extended to consumers. For years, they’ve been charging small businesses over the odds for their energy, locking them into unfair contracts, and making life as difficult as possible for firms that try to seek out a better deal.
What is to be done about the way in which small business energy customers are treated as second-rate citizens? Well, more rigorous regulatory intervention is certainly required. In that sense, it is good news that the ongoing Competition and Markets Authority inquiry into the competitiveness of the energy sector does cover small business customers. Less happily, this investigation isn’t due to report until the end of 2015.
In the meantime, there is no reason why Ofgem can’t work harder to protect the interests of small businesses. For example, there is currently no requirement on providers to publish standardised details of their tariffs and prices so that small business customers can compare like with like. Nor has there been much pressure applied to energy customers to simplify terms and conditions, which are invariably a source of detriment for small businesses.
These are not wildly optimistic aspirations and the record shows that where Ofgem has intervened, practice has improved as a result. For example, the regulator has moved towards outlawing rollover contracts (though not banned them altogether), which automatically switch businesses from one long-term locked-in poor deal to another unless they opt out at a specific moment. As a result, these arrangements have mostly been phased out.
In the absence of more stringent regulator protection, however, the only option for small businesses is to take their business elsewhere – not by switching from one big six provider to another, which is essentially an exercise in swings and roundabouts, but by seeking out new entrants to the sector. For just as banking is now being shaken up by new competitors, so too is the energy company being targeted by challenger providers. The likes of Opus, Dong, CNG and Haven are all worth at least talking to.
If in doubt, use a price comparison service that specialises in small business energy supplies – Make it Cheaper or Energyhelpline.com, for example. Whatever you do, do something: it’s clear that the big energy companies don’t plan on offering small business customers a better deal anytime soon, and regulators aren’t rushing to their aid either.
Start-ups offered a year of support
Calling all start-up firms looking for financial assistance, mentoring and other support: the payments company MasterCard is searching for its Start Path Europe class of 2015, with opportunities for up to eight businesses to join the 12-month accelerator programme.
“We tailor the support to match the needs of the start-up, rather than apply a one-size-fits-all approach,” explains Stephane Wyper, who runs the programme for MasterCard.
The scheme operates out of Dublin, though support is also available virtually, and offers benefits worth tens of thousands of pounds.
The initial application window runs until 19 February. The scheme is open to any start-up business working on innovations of potential benefit to commerce.
Previous ventures have included businesses developing everything from smart ticketing to fraud protection systems.
Peer-to-peer lender in US tie-up
It has not been a bad seven days for Assetz Capital, the peer-to-peer lending platform. Not only has it raised up to £150m for small businesses seeking loans from the service, but it has also agreed a tie-up with Royal Bank of Scotland, which will refer unsuccessful small business loan applicants to the platform.
The £150m is to be made available over the next five years by Victory Park Capital, a US asset manager that specialises in middle market debt and equity investments.
RBS, the largest bank lender to small businesses in the UK, is trialling its referral system, with businesses turned down for credit automatically pushed towards Assetz Capital and another peer-to-peer lender, Funding Circle.
Legislation due to come into effect next year will require banks to signpost unsuccessful small business credit applicants to alternative sources of finance.
Small Business People of the Week: James Codling and Paul Moravek, Co-founders, VentureFounders
“We met when we both worked at JP Morgan – 15 or so years later after doing a number of different roles, including working with small companies and start-ups, we talked about crowdfunding opportunities and realised we had a meeting of minds. We both felt the challenge for platforms that link companies raising capital to investors prepared to offer it was to balance the needs of both parties.
“We spend a great deal of time with businesses that want to raise money on the platform, subjecting them to detailed due diligence and advising them on their plans – the idea is to bring our investment skills to the crowdfunding sector.
“The way we operate means we’re sourcing funding for smaller numbers of companies, but our investors are putting up larger amounts – the four businesses that have successfully raised money on the platform so far have raised an average of around £600,000.
“While the platform has only been fully operational for six months or so, we’re confident about the future. Investors like the asset management approach we take to selecting companies for the platform, while businesses value the support we offer, which continues after the fundraising has completed.”Reuse content