Rising energy costs curtailing SME growth; Ombudsman blames price gouging, politics

energy spend

Research showing that SMEs are reducing capital expenditure due to rising energy prices has prompted criticism of the state governments by the Australian Small Business and Family Enterprise Ombudsman.

The Ombudsman, Kate Carnell, pointed to the latest East & Partners SME survey* of 1280 businesses, which showed that 39.5% of SMES plan to scale back short-term capital expenditure due to higher energy prices, while 20.8% will scale back capital expenditure in the long-term, and a further 9.9% will reduce capital expenditure in the short and long-term.

“Effectively, more than 70% of SMEs are telling us the current energy prices will impact their investment in their business, particularly their capital expenditure – that’s a really big, high figure,” she told Dynamic Business.

“If they’re not investing in capex, that will affect business growth and, in turn, the overall economy. Fortunately, there some steps SMEs can take to address rising energy costs, such as having an energy audit. We’ve found that an energy audit can show a business how to reduce their energy costs quite significantly. Also, it would be worthwhile looking at how energy costs could be reduced through an energy broker who buys in bulk for a range of small businesses.”

Despite suggesting ways for SMEs to reduce their energy expenditure, Carnell said the ‘overarching message’ from her office was that the energy crisis was real issue for SMEs and that “all levels of government, along with all political parties, must stop playing politics and endorse the Finkel Report“.

“The report offers a national, long-term approach to addressing the problem and repairing the long-term damage of failed policies,” she said.

“Unless we have a long-term plan for reducing energy prices moving forward, the ability for SMEs to grow and innovate will be compromised. Energy prices are impacting of their capacity to conduct and invest in their business.”

Asked what role energy retailers could play to alleviate the impact of rising energy prices on SMEs, Carnell replied “look at their pricing structures”.

“We believe small businesses are, in many cases, being gouged,” she explained. “Big businesses are able to negotiate outcomes because they use a lot of energy, meaning the SME sector ends up being the meat in the sandwich.  Some of the prices SMEs are being charged are unrealistic – they’re far too high. We also believe the current method of billing is unreasonable – it’s too complex and small businesses are finding it very difficult to assess what their bill means and whether it’s even correct. Assessing whether their bills are correct or not is not something a small business has a lot of time for. For this reason, it’s up for the energy companies to understand the importance of SMEs for the economy and not gouge them; instead, they must offer them fair prices and ensure bills and deals are understandable”.

* The energy question was asked as part of the East & Partners SME Transaction Banking survey, which examines and forecasts demand for transaction banking product lines and service offerings within Australia’s Small to Medium Enterprise (SME) segment (A$1-20 million turnover per annum).

See also: The energy market: “If we don’t fix it, small businesses will close,” warns Kate Carnell