‘Act now’: Warning as London firms overpaying by up to 80% on energy bills

Businesses in London have been warned they face a “perfect storm” of rising costs – with some paying up to 80% more on energy than they should be.

Leading price comparison website BusinessComparison, which focuses on helping save businesses money on their energy, insurance and broadband, says firms that have not secured a formal energy contract and are on what are known as ‘deemed rates’ are often paying more than those on negotiated deals. According to Ofgem estimates, that figure is often up to 80% higher.

Data from Cheshire-based BusinessComparison and its parent company Bionic shows that more than 60% of businesses using their ‘Digital Renewals’ service save an average of £500 annually – with one in five saving over £1,600 a year. These savings are particularly significant for companies that have rolled onto deemed or out-of-contract rates without realising.

It comes as budgets for all businesses are squeezed further, with March’s rise in the National Minimum Wage and National Insurance Contributions meaning thousands in extra costs for many companies.

Philip Brennan, Founder and Managing Director of BusinessComparison, said: “Businesses in London and across the UK are being hit from all sides.

“We’ve just come through the cost-of-living crisis, we’re still dealing with the long tail of Brexit and Covid, and now firms are being hit with higher NICs.

“On top of that, and with no cap on business energy prices, many are unknowingly overpaying on their energy bills – some by up to 80%. It’s a perfect storm and it’s threatening the resilience of thousands of small and medium-sized businesses.”

Deemed rates are default energy tariffs charged when a business hasn’t signed a formal contract, and they’re often far higher than agreed deals. Ofgem figures also estimate that around 10% of microbusinesses – a company with just a few staff – are on deemed rates.

Rising costs can be offset and even reversed by switching suppliers. However, according to stats from the Federation of Small Businesses, 43% of firms have never switched.

There are various reasons why companies are reluctant to switch, including a lack of understanding about the different suppliers, customer loyalty and concern about the time and effort it may involve.

Philip Brennan added: “Switching suppliers is one of the quickest ways businesses can cut costs right now. With bills rising and margins tightening, it’s a simple step that could make a big difference – so we’d urge firms to act now and potentially save big.”