According to insolvency experts, tens of thousands of companies are at risk of going under without government support due to rising energy bills.
Red Flag Alert, which monitors the financial health of companies, told the BBC previously profitable companies are suffering significant losses.
Among those who survive, many will be forced to lay off workers, the consultancy said.
Businesses are waiting to hear if they can get help with their energy bills.
On Thursday, the government, led by new Prime Minister Liz Truss, is expected to announce significant financial support for households facing an 80 percent increase in the energy price cap in October.
Businesses don’t fall under the cap, however, and Red Flag warns that more than 75,000 larger, energy-consuming companies face bankruptcy or likely layoffs.
Many businesses will face a choice between paying wages or energy bills, Red Flag said.
“Companies cannot afford these costs and are very quickly forced to make a decision about the number of employees or the ability to pay energy bills,” said chief economist Nicola Headlam. “That’s going to be the reality and it’s coming to the track very quickly.”
According to Red Flag Alert, there are 355,000 companies with a turnover of more than £1m that are identified as high energy consumers – industries such as steel, glass, concrete and paper making. Of these, the company estimates that 75,972 are at risk of bankruptcy and 26,720 could fail because of energy costs. That’s on top of the 26,000 bankruptcies they had already forecast for this year.
“That’s a colossal number of people whose businesses will fail without a major government support package,” Ms Headlam said. “That’s more than during the pandemic and more than in any other recession,” she said.
“A company that had a turnover of over £1m two years ago would have spent about 8% of that on energy costs and made a profit of about £90,000,” she said. “When energy costs double to 16%, it immediately wipes out profitability and they are squarely in a scenario where the company’s profitability is at risk within a year.”
Alongside the big, energy-intensive companies, smaller businesses with sales of less than £1million were also at risk, according to the Red Flag Alert. It highlighted the hospitality sector, where businesses face a triple threat of rising energy bills, higher utility and labor costs, and a fall in consumer spending due to inflation.
That certainly applies to James Greenhalgh, who runs Flamingos Coffee House in Leeds, and also a bar in the city. The combined energy bill for both is set to rise from £1,500 to around £10,000 from early October.
“It’s more expensive than our wage bill. This is just disastrous,” said Mr Greenhalgh.
“It’s an extinction event for a lot of companies like mine,” Mr Greenhalgh said.
“I’ve spoken to so many similar companies in Leeds and they’re all in the same situation – contemplating whether we try to fight our way through mothballs through the winter and hope things improve, or it’s game over. “
“The only thing I can do is wait and see what help the government will give. I can’t make any innovations out of it. I can’t raise prices because our customers don’t have the money.”
Without quick government help, Mr Greenhalgh said he would have to close one of his sites and lay off staff.
“If the government had intervened two months ago it would have made a much bigger difference. The delays this summer have shaken customer confidence,” he added.
Businesses need £100bn a year in support to cope with soaring energy bills, according to Red Flag Alert.
But the government is already under pressure on how it will fund a promised household support package while sticking to promises of tax cuts.
It is expected to announce plans on Thursday to borrow up to £100bn to help cut gas and electricity bills this winter.
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