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Don't let the energy crisis abandon small businesses

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As energy prices soar, British politicians seem to be looking to Latin American literature for guidance. As in the novels of Nobel laureate Gabriel Garcia Marquez, officials have lost the ability to distinguish between physical and magical realism.

Outgoing Prime Minister Boris Johnson is clearly a fan of the literary genre. In his resignation speech Thursday, he blamed everyone but himself for the current situation. He’s been in power for over a decade because of his problems. “Thanks a lot Tony, thanks a lot Gordon.”

But the Conservatives have been in power since 2010, giving, in Mr Johnson’s words, enough of a political cycle to turn. But the UK household faces an 80% increase in his electricity and gas bills as the energy price cap rises from October. Businesses, meanwhile, are struggling to pay the much higher utility bills at the price of government magic realism.

Over the past few months, the public debate about how to deal with soaring electricity and gas prices has largely focused on helping households. , her rival Rishi Snak, also offered no concrete solutions.

Families are certainly facing harsh winters and the poorest will struggle to heat their homes. Even relatively wealthy families have to divert much, if not all, of their discretionary spending to pay for lighting and keeping their homes warm. Given that background, the plight of wealthy business owners in general might seem trivial. But with thousands of jobs at stake, their needs are worth considering as well.

Earlier this week, Truss was asked how it plans to support business owners. Her reaction also crossed the line between fact and fiction. Long term, she is right. But her pledge not to rely on energy rationing may come back to haunt her as Britain has zero chance of coming up with additional supplies to meet the power shortages it faces next winter. I can’t.

Unlike UK retail customers, SMEs are not protected by energy price caps and are fully exposed to the recent sharp spike in wholesale electricity prices. For some companies, costs could quadruple when utility contracts are renewed. This usually happens between now and the end of the year. In one example of his that went viral among small business owners on social media this week, the son of a small cafe owner in Leicester saw his annual electricity bill rise to more than £55,000 ($64,000) at the end of the year. indicated to jump up. That month was up from about £10,000 earlier.

British companies are not the only ones that need government intervention. Elsewhere in Europe, too, little has been done to support family businesses and SMEs. Earlier this week, the German government said it was concerned that the country’s legendary Mittelstand sector was halting production due to rising energy costs.

SMEs have limited options in the face of significant energy price increases. Accept lower profits, pass on as much of the increase as possible to customers, or ultimately cut staff or shut down. With consumer prices already soaring around the world, central banks are concerned wages will rise as workers take advantage of tight labor markets to demand higher wages. But so-called secondary price increases also include companies raising the prices of goods and services to offset the impact of higher energy prices. Policy makers could face a more sustained inflation outlook than they currently anticipate.

So what is the solution? One short-term option is to treat cafés, landlord-owned pubs, corner shops, bakeries, and other family-run establishments as effectively being homes, with price caps on smaller businesses. to expand to In fact, many of them are: For example, pub owners often live above their bars. Eliminate distinctions between households that operate on the premises and those that do not.

The regulatory regime also needs to improve. Some companies averted the crisis and secured multi-year deals early last year before prices exploded. But they lost that protection when their supplier collapsed. This seems unfair. The government also needs to step in to stop utilities from refusing to sell energy to small businesses unless they pay large deposits to cover the risk of bankruptcy. I have.

Above all, politicians across Europe need to discuss not only how to help families, but also the thousands of small businesses that provide the jobs on which families depend. There is a risk of developing into an economic crisis.

Bloomberg Opinion Details:

• Britain’s energy crisis won’t steal Christmas: Andrea Felsted

• With gas prices soaring, the UK needs a real energy plan: an editorial

• Keeping the lights of Europe on will be even harder this winter: Opinion wraps

This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist for energy and commodities. A former reporter for Bloomberg News and his editor at The Times of Financials Commodities, he is co-author of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.

More articles like this can be found at bloomberg.com/opinion.

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