Restaurants and Pubs Don’t Have the Energy for Another Crisis

Irrepressibly rising energy costs and inflation are set to hammer restaurants and pubs and their suppliers across the U.K., with the government apparently yet to learn the lessons COVID-19 could have taught it about the importance of adequate, timely financial support.

While Ofgem, the U.K. energy regulator, sets a price cap for household energy bills, no such limit exists for businesses, and October is typically the month in which gas and electricity providers renew long-term contracts for businesses like restaurants, pubs, bars, and suppliers, from butchers and grocers to brewers and bakers. Those contracts typically set energy prices at fixed rate, for one and sometimes more years.

At the moment, this is proving nightmarish. Energy suppliers insulate themselves against business closures using credit insurance. This means that if a client were to close, the supplier would be protected from lost earnings. But the surging gas and electricity prices — and the unpredictability of those surges — are increasing the risk to the insurers of providing that credit. This is causing energy suppliers to defer renewing fixed contracts, in favour of either floating contracts that will move unpredictably with prices like waves in the ocean, or asking businesses for gigantic deposits of tens of thousands of pounds as insurance of a different kind.

This has led the lobbies that represent restaurants and pubs to pressure the government for financial support, as they did during the COVID-19 crisis. The British Institute of Innkeeping (BII) says “almost two in three” of its members are seeing “price rises of more than 300 percent,” while warning that “one in three pubs will fail in the next three months.” U.K. Hospitality, meanwhile, is projecting that “10,000 businesses could close permanently in the next 18 months,” which would cost around half a million hospitality jobs.

But as in the COVID-19 pandemic, any financial interventions will come to late for businesses that already face a choice between renewing in already dire financial straits, and cutting their losses before they get too much to bear. In January 2021, Rishi Sunak was dallying over announcing new financial support before that year’s budget, on 3 March. The situation forced restaurants, pubs, cafes, and bars to plan under the assumption that nothing would come, whether by cutting operating hours; laying off staff, or, worst of all, preemptively closing all together. Now, businesses are waiting on the election of a new Prime Minister, and the same scenario is already playing out across the U.K.: a quick scan of local news websites with a search like “energy bills closing” pulls up small, important community businesses that cannot stomach massive price spikes now, even if support arrives later.

It’s not just that prices have risen — whether for ingredients, energy, or less obvious things like cooking oil. Inflation hitting 9 percent in April of this year (with a rise to over 20 percent predicted) has also depressed customer spending, demolishing a predicted £12 billion increase in hospitality revenues whose figures were calculated before Russia invaded Ukraine, putting huge pressure on oil and gas prices and secondarily driving up the costs of other products

Rates of restaurant insolvency are already steepening in the U.K., with 1400 that survived COVID-19 unable to weather the loan and rent repayments, staff shortages, and price rises from Brexit and, then, Putin’s invasion. Thousands more are already vulnerable, having lurched from one crisis to another over the past three years. It isn’t about to get any easier, and for now, the government isn’t doing anything to help. By the time it does, it will be even later for some than it is already is now.