Small businesses must be protected by electricity market safeguards to prevent energy bills from escalating further as small firms say they are concerned about the rising cost of energy, the Federation of Small Businesses (FSB) said in a new report.

Essex FSB Chairman, Iain Wicks, said: “In the 2011 Budget, the Government announced plans to reform the electricity market and introduce carbon pricing – a mechanism that artificially increases the prices of electricity generated from fossil fuels – in order to make renewable and nuclear energy more attractive energy sources and decrease the UK’s dependence on fossil fuel energy.

“But, ahead of the While Paper on Electricity Market Reform due tomorrow (Tuesday 12), the FSB is raising concern that electricity generators will pass on the extra costs to consumers. This comes at a time when two of the big six energy companies have recently announced large price increases with the rest likely to follow.

“In a new report, ‘Small business and infrastructure: Energy’, the FSB is arguing that while it supports the idea of incentives to invest in low carbon infrastructure, there needs to be safeguards in place to prevent electricity generators from passing the carbon price on to consumers by pushing prices up further.

“Research from the FSB’s ‘Voice of Small Business’ survey panel shows that eight in 10 (81%) small firms are worried about the rising cost of energy. The survey also found that small businesses are concerned that they have limited knowledge of the energy options open to their business (18%) and very few understand energy contracts (18%).

“The FSB has long argued that the smallest of businesses are similar to domestic energy users, but they do not receive the same regulatory safeguards as domestic users and are unable to negotiate contracts the way that larger businesses can.

“The FSB is calling on the Government to ensure that any safeguards put in place around carbon pricing treat small businesses in the same way as domestic users, and that this be extended across other market regulations, so that small businesses are not penalised because of their limited knowledge and purchasing power and the unpredictability of their demand."

John Walker, National Chairman, Federation of Small Businesses, said: “Energy companies have increased prices sharply over the past five years, with yet more rises over the past few weeks. There is a huge risk that introducing a mechanism to increase electricity prices generated by fossil fuels will further inflate prices for the smaller players as generators pass on the extra costs to consumers and small firms. This concern comes at a troubling time for small firms and is yet another thing that will prevent them from growing their business and taking on staff – precisely what the Government is asking them to do. The Government must ensure it puts safeguards in place to protect consumers – including small businesses – and prevent energy companies from passing on the levy.”