A quarter of small businesses plan to close, downsize or “radically change” their model if the Government reduces support with energy costs from April, according to a new study.

The Federation of Small Businesses (FSB) has warned that firms’ survival during the ongoing energy price crisis will depend on continued government support through the Energy Bill Relief Scheme (EBRS) beyond March.

With energy costs set to remain high throughout 2023, its survey found that 24% planned to close, downsize or radically change their business model if the support ended. Some sectors face a bleaker prospect such as manufacturing at 29%.

It also revealed that 44% of small firms were considering raising prices to cope with soaring bills if EBRS ends, and 30% expected to cancel or scale down planned investments.

Even if their energy costs continue to rise, 18% told the FSB that they would need to keep prices the same because their customers simply could not afford further increases.

Already, 63% said that energy costs had increased this year compared to last year, with 44% reporting a double, triple or even higher increase in their energy bills. Nearly one in five (19%) said their bills had at least tripled.

In response to the bills, 46% said they had already raised prices although it has been impossible for them to pass on full costs to customers because of the wider cost-of-living rises.

The findings have been submitted to the Department for Business, Energy & Industrial Strategy (BEIS) which is reviewing how to support businesses and other organisations beyond the current end of the EBRS on 31 March.

FSB national chair Martin McTague said: “Our research indicates that small firms are being held back from investment and are at the brink of collapse because of sky-rocketing energy costs.

“It’d be a real shame and great loss to our economy if those who managed to get through the pandemic and this tough winter with government support end up closing their businesses because relief ends too sharply in April.

“Latest OECD forecasts suggest the UK economy will suffer the biggest hit from the energy crisis among G7 nations. But the tides can be turned if the Government extends the period of energy support to struggling small businesses after the EBRS ends in April next year.

“It’s important that the government provide certainty to small firms for the long term as they can’t plan on a six-month horizon.

“Business size must be taken into account as a relevant factor in the government review of the EBRS, given the stark impact on small firms which have typically lower margins and are least able to deal with the rising costs. It can’t be a purely sector-based decision, otherwise it’ll lead to deadweight and unfairness.”