The Mayor of the West Midlands, Andy Street, showed the boss of Ofgem first-hand how businesses locked into sky high energy contracts are being forced to lay off staff as they battle for survival.
The Mayor took Jonathan Brearley, chief executive of the energy watchdog, to Robinson Brothers Limited, a global supplier for specialty chemicals, based in West Bromwich.
The manufacturer employed 260 local people but made 40 staff redundant last year to stay afloat after its energy bill rocketed from £1.9 million to £3.9 million. Adrian Hanrahan, managing director of Robinson Brothers Limited, said the process of letting staff go was “very painful”.
“We’ve had to take people out, we’ve had to take products out that we thought would not stand this significant increase in energy prices," he said. "It’s a family business - the same family since 1869 - and we all pretty much know each other.
“I feel government should be talking about this to me it feels like profiteering. It feels like we are an easy hit because there's nothing we can do about it. Mr Hanrahan said his company bought its gas and electric two to three years in advance, but said he was now forced to contend with “high prices”.
“The industrial cap was set too high for us," he added. "We don't get enough support. So how do we grow? I keep repeating this, we're not here just to survive. We really want to survive having grown the business and therefore we need help, and we certainly don't want any free handouts from the government.
“I’d ask the Prime Minister do you really want manufacturing in this country? Because if you do, you’ve got to sort this out." The visit took place as the Mayor again called on energy providers to release businesses from punitive fixed-price energy contracts signed last year – when energy prices were at a peak – and renegotiate deals.
He said failure to do so could result in further “existential pressures” for businesses. Thousands of companies, including those in the West Midlands, have warned of their financial struggles after signing fixed-price contracts in the second half of 2022.
Last autumn, data from the Birmingham Chamber of Commerce suggested 34% of local businesses remain locked into fixed-term energy contracts of 50p/kWh or higher. Other research suggests more than one in 10 companies in the West Midlands are now spending in excess of 20% of their turnover on energy.
The Mayor, who is also the WMCA Chair, said: “I know that many businesses across the West Midlands are under immense pressure because of the energy market. Even though prices are falling slowly for customers there are many businesses wondering how they’re going to cope over the coming winter - not least those who had to sign contracts last autumn at the height of the global energy crisis.
“That’s why I wanted Jonathan Brearley to visit manufacturers here in the Black Country to understand what can be done to help – including the case for new legislation. The conversation was honest and productive, and it’s vital we now continue to make our case to the government and get energy suppliers on board.”
The Mayor said it was critical for Ofgem to understand how these “punitive contracts affect businesses, customers and jobs” during the current cost-of-living crisis. While customers are expected to see lower gas and electricity bills this winter due to a predicted fall in the energy price cap from October, many businesses have so far failed to benefit from the downward trend in wholesale prices.
Ofgem, the energy regulator for Great Britain, is able to set the energy price cap for domestic consumers but does not have regulatory powers over prices for businesses. Mr Brearley, who is visiting the West Midlands as part of a tour, said many businesses had “faced the same issues as households”.
He said: “It was good to meet the team at Robinson Brothers and discuss the challenges that small scale manufacturing companies like them are facing in the current energy market.
“Ofgem works for all customers, and this includes businesses, who we know have faced the same issues as households. Following a review earlier this year we’ve made some changes to improve things for businesses and are consulting on some other ways to extend protections.
“However, to improve things will require sustained efforts from across government, the industry and the regulator. I’m grateful to the Mayor and Robinson Brothers for meeting with me to tell me about their experiences and concerns.” In March, the Mayor set up a roundtable with Matthew Rhodes, chair of the West Midlands Industrial Energy Taskforce, and the Black Country LEP, to discuss emergency short term actions to help businesses with energy costs.
Its report, published in July, estimated the impact of the energy crisis on the region’s businesses had reduced output – or GVA (Gross Value Added) by 2%. It added that around 14% were facing energy costs exceeding 20% of their turnover and 30% remain locked into fixed tariffs that were more than three times pre-crisis rates.
