"One in Four UK Small Businesses Faces Closure" Europe Also Struggles with Gas and Electricity Bill Shocks

UK Government Energy Subsidy Cuts... Energy Costs Rise in Service Sector
Spain Also Faces Increased Household Living Expenses

[Asia Economy Reporter Kwon Haeyoung] Global working-class people in Europe and elsewhere are struggling due to soaring energy prices caused by the Russia-Ukraine war. Although natural gas prices have stabilized thanks to a warmer-than-average winter, the burden on small and medium-sized merchants continues due to already surged energy prices.

According to foreign media on the 26th (local time), the Federation of Small Businesses in the UK announced that one in four small businesses is expected to close or restructure due to government subsidy cuts. The government's energy bill support was the last lifeline to defend against soaring energy prices, but concerns are growing that companies will close or reduce jobs if support decreases.

Earlier, the UK government had been providing subsidies to businesses for energy price surges since October last year but decided to reduce the subsidy amount starting in April. As a result, energy costs for 5.5 million small businesses are expected to surge.

The UK Liberal Democrats forecast that if the government reduces gas and electricity subsidies for businesses, annual energy costs for service sector businesses in London will increase by about ?4,500 (approximately 6.9 million KRW) per business. Among the surveyed companies, 260 pubs, restaurants, and cafes located in London are expected to see an average annual energy cost increase of ?5,278. Small businesses with fewer than 10 employees, totaling 130, are expected to spend an additional ?3,889 annually. Ninety-five businesses with fewer than 50 employees are projected to face an increase of ?5,557, and 35 businesses with fewer than 250 employees are expected to see energy costs rise by ?9,677 annually.

Not only in the UK, but Spain’s middle and working classes are also struggling with the burden of rising living costs due to the surge in energy prices. According to the international relief and development organization Oxfam, before the energy crisis caused by the Ukraine war, 5 out of 10 Spanish households were saving money. However, after the war, the number of saving households dropped to 3 out of 10. Among the 4th income decile households, which correspond to the middle class in Spain’s income distribution, 4% spent more than half of their income on energy costs last year.

In some countries, the chronic obstructive pulmonary disease (COPD) patients’ hardship due to soaring electricity bills has become a social issue. COPD patients who rely on home oxygen concentrators all day face a sharp increase in electricity costs for operating medical devices, which has significantly raised their living burdens. In Spain, monthly electricity bills for COPD patients are reported to be around 400 euros, about three times higher than before the Ukraine war. A survey by the UK charity Asthma + Lung UK of 3,600 people with lung diseases found that one in five reduced spending on medicine, heating, and groceries due to rising living costs.

The somewhat fortunate news is that recent mild weather in Europe has led to a slight easing of the upward trend in energy prices such as natural gas. According to energy market research firm Cornwall Insight, the average household energy bill is expected to decrease to ?3,209 per quarter in the first half of this year and ?2,241 per quarter in the second half. The mild weather has slightly reduced energy demand, causing natural gas prices to fall back to pre-Ukraine war levels, indicating a stabilization of energy prices. However, these levels are still higher than those from 2019 to 2021, meaning the energy cost burden on households and businesses remains significant.

Kate Nicholls, CEO of UK Hospitality, expressed concern, saying, "Government energy subsidy support was a lifeline for many service sector workers, but now many shops are closing, and jobs are at risk of disappearing."