Further detail could be delayed by period of national mourning
Construction SMEs have been left “on tenterhooks” waiting to find out how the government plans to support them with their energy bills.
New prime minister Liz Truss last week announced an unprecedented intervention in the energy market to cap average household bills at £2,500, promising an “equivalent guarantee” for businesses for the next six months.
But little detail was given by the government on how it intended to cap costs for the business sector, where pricing is more complex.
The vagueness of the announcement has triggered some criticism from industry, with Arcadis’ UK cities director, Peter Hogg, saying businesses had been left “on tenterhooks” by the announcement and said the government needed to make clear its plans for equivalent support “and do so soon”.
But a speedy clarification may not be forthcoming – Building understands that there is unlikely to be substantive policy announcements from the Department for Business, Energy and Industrial Strategy during the 10 days of national mourning which follow the death of Queen Elizabeth II last Thursday.
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Noble Francis, economics director at the Construction Products Association (CPA), said there was a great deal of variety in the pricing of energy for businesses, speculating the government could target price caps for different businesses at different rates.
“It will take a bit of time to analyse which sectors are most exposed within these sectors, what types of businesses are most exposed, and to see which businesses are able to absorb energy price rises,” he said.
But until further details are announced, said Hogg, SMEs up and down the country “are left with a double whammy of continuing uncertainty, no price cap and, as yet, no details on an assistance package”.
Martin McTague, national chair of the Federation of Small Businesses, said the announcement was “sparse on detail” and left many questions unanswered, such as what fixed unit prices and standing charges would be from 1 October and whether firms that have accepted hugely increased bills in recent weeks would be able to renegotiate.
He added that the support package would be a “lifeline” for many firms, if “done right”.
Chief executive of the Federation of Master Builders, Brian Berry, said the “desperately needed” intervention was “ultimately a sticking plaster” and suggested removing VAT on repair, maintenance and improvement work.
“Long-term, we must improve the energy efficiency of the UK’s leaky homes to reduce their energy use,” he said, urging the government to develop a nationwide retrofit plan to cut bills and create work for local builders.
Francis said the price cap aimed at households would make “a very big difference” to confidence and could help sustain demand in flagging areas such as private housing new build and repair, maintenance and improvement.
Last week, before Truss’s announcement, Frank Hanna, joint chief executive of brick firm Michelmersh said “there needs to be some sort of sensible intervention [from government] based around energy and stabilising people’s disposable incomes”.
Stephen Marcos Jones, chief executive of the Association for Consultancy and Engineering, said his members were concerned about the broader economy, with the industry needing “reassurance and clarity over the longer term outlook” on issues such as net zero and levelling up.
“I was pleased to see Liz Truss’ support for investment in connectivity and roads in her welcoming speech outside Number 10,” he added. “We need to turn these positive words into tangible actions and projects and our members look forward to working with the government to do so.”
ECA director of workforce and public affairs, Andrew Eldred, expressed concern at the “lack of transparency” around long-term support for business and hoped the electrotechnical and engineering services sector would be granted support after the six months.
Mike Hedges, director at Beard Construction, said the six months of support for businesses “doesn’t feel like a particularly long time”, though he welcomed the “scale and ambition” of the price cap for households.
He said that if the government wanted to tackle inflation, particularly in industries such as construction, it may have to provide additional targeted support for energy intensive manufacturers of construction products.
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According to the CPA, building materials inflation in the year to July was 24%.
But Hedges said the industry needed to take initiative, too, specifying materials that do not have high energy content.
“The bigger picture is that materials with higher energy content are always going to go up in price and actually sustainable alternatives is where we should also be heading,” he said.
Hedges added that the new PM needed an “exit strategy” focused on reducing demand, localised energy generation and making buildings more efficient.
“The fracking licences and the further licences to drill oil in the North Sea, it feels like half a step back on the green agenda,” he said.
David Clements, chief executive of Future Designs, a large commercial lighting provider, said it was unclear how much impact the plans would have, as there are “so many other variables that we can’t control”.
He said he had seen energy costs increase by around 30% across the firm’s offices and manufacturing facilities and predicted that these price rises were “here to stay”.
“My view is the PM is doing everything she can within the constraints of the monstrous deficit left behind by covid, and the double hit of businesses heating and lighting their offices for employees, whilst a huge percentage of their workforce is still languishing at home,” he added.
Richard Costin, chief executive of office furniture manufacturer Bisley, said his firm’s gas bill had increased by 681% a rate of inflation it “cannot afford to absorb”.
He added that the PMs plans lacked the “clarity and detail” necessary to assess them, but doubted they would be enough.
Rennie Dalrymple, managing director of project management firm Concert, said he thought support for general businesses were “probably going to remain slim”.
“Inevitably the planned interventions in energy sector are long overdue but are likely to increase interest rates further in the medium to longer term, adding to our ongoing wider economic pressures,” he said.
“More robust action should be taken immediately for businesses that are already supporting and utilising greener energy sources.”
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