In the “worst mis-selling scandal since PPI,” according to trade groups, many companies had to renew contracts at the market’s apex.

More than one million small businesses may be paying energy bills substantially above market rates due to being trapped in long-term contracts locked in when prices reached an all-time high last year.

Businesses ranging from metalworkers to convenience stores have banded together to warn of a “dangerous situation.”

They are urging ministers to compel suppliers to renegotiate unaffordable energy contracts signed last summer or risk thousands of insolvencies that would hurt employment and the UK economy. According to surveys, over one million of the UK’s 5.5 million small businesses may have been coerced or mis-sold into renewing their long-term energy supply contracts during the market’s peak.

At the time, it was difficult for many small businesses to find an energy agreement because suppliers either refused to supply them or demanded substantial financial deposits.

Since then, market prices have declined, and on 1 April, the government curtailed its financial support for businesses. However, companies are still bound by long-term contracts requiring them to pay inflated prices based on last year’s peak for months or years.

The warning was issued weeks after the energy regulator, Ofgem, acknowledged it was “very concerned” about the conduct of some energy brokers and suppliers towards business energy customers.

Ofgem stated in a letter to the chancellor of the exchequer last month that companies confront energy bills that are “higher than what is explained by market conditions”.

Small manufacturers are believed to be among the most negatively affected due to their excessive energy consumption. The failure of these companies, which produce components used by larger manufacturers, could have repercussions on the supply chains of the United Kingdom, he said.

The British Chambers of Commerce (BCC) estimated that over a quarter of small businesses in the United Kingdom signed new energy contracts when prices were at their zenith at the end of last summer. Approximately 60% of respondents indicated they would encounter payment difficulties after March 2023.

Many were bound to high prices due to the government’s encouragement to sign fixed-price contracts instead of tracker arrangements.

According to a separate survey by the FSB, 24% of small businesses were on fixed contracts, and 320,000 may need help paying their expenses. The FSB’s policy chair, Tina McKenzie, stated that firms should be permitted to “blend and extend” their current energy rates with rates that reflect lower market prices to be given “a fighting chance.”

Association of Convenience Stores spokesman Chris Noice stated, “Thousands of our members are experiencing the short-term pain of fixed contracts signed in the second half of 2022, at the peak of wholesale prices.”

In the absence of government support, ministers should “assist them in quickly transitioning from these enormous fixed contracts to something that more accurately reflects the current wholesale market,” he said.

The government advised retailers and other businesses to choose fixed-price contracts because the energy bill relief programme would provide greater protection to those with fixed rates.

A government spokesperson stated that businesses had been offered £5.6bn in winter aid, allowing some to pay approximately half of the anticipated wholesale energy costs.

“Global energy prices have decreased substantially and are now at their lowest level since Russia’s illegal invasion of Ukraine. A spokesperson said that the new level of government assistance reflects the welcome price decline, but we will continue to support businesses as we have throughout the winter.”

Hardeman was among the tens of thousands of managers persuaded to sign long-term fixed energy supply contracts when market prices were at their highest.

“There were very few available contracts at the time, so we considered ourselves fortunate to obtain the one we did,” he said. However, his company must pay 46p per kilowatt hour for energy, whereas the market rate is closer to 28p/KWh. For smaller manufacturers, the weight of overpriced long-term deals and the end of the government’s previous support programme could result in bankruptcy, with catastrophic consequences for employment and the UK supply chain.

“All the government must do is permit the renegotiation of burdensome contracts.”

Philip Ford, managing director of six nurseries in East Sussex, stated, “We do not have the option of turning down the heating.” We’ve heard of nurseries asking parents to send their children to school with extra sweaters, but this is our first time doing this.

Ford is among the many small business proprietors who have experienced a “massive” increase in energy costs since the government’s energy bill relief programme ended in March. The replacement is a campaign to help small businesses reduce their energy consumption and a new discount scheme that offers little assistance to small businesses, many of which were compelled to sign long-term energy supply contracts last summer when energy markets peaked.

According to Ford, signing long-term fixed-rate energy supply contracts last year was “reasonable” at the time ” as we didn’t know where energy costs were headed.” At one nursery, quarterly electricity expenditures quadrupled to approximately £6,000. The Hopscotch group’s total energy costs increased from £30,000 per year in 2020 to £60,000 per year last year.

“We don’t want to keep asking for [government] assistance, but we’re in a bind like all small enterprises. Some alternatives could alleviate the burden in other areas, such as reducing business taxes,” he said.