According to a new report from the Federation of Small Businesses (FSB), small companies could be drawn away from the Green Deal, which officially opens on today (1 October).

The report says any potential cost savings are likely to be consumed by rising energy bills, which are to be driven by a number of upcoming expensive energy and environmental policies.

The report, Making Sense of Going Green, claims that the Green Deal which should help small firms reduce the cost of their energy bills through energy efficiency improvements may not reach its full potential as the cost of low carbon policies and other new environmental regulations actually eat into those cost savings. As a result, small businesses cash-flow will undoubtedly suffer.

Restructuring of the electricity market is likely to increase small businesses’ energy bills by 34%, and the implementation of the UK’s Carbon Price Floor will mean that UK businesses will be paying higher energy bills than their European counterparts.

In conjunction with these developments, the FSB report shows that a large number of costly energy and environmental policies are going to affect small businesses’ cash-flow in the next two years.

Small businesses that elect to take out a Green Deal will face longer payback times than households and before any substantial savings are made, they will forced to repay the initial cost at what could be commercial rates of interest.

For many firms, the FSB expect this to be a reason they choose not to take out a Green Deal, and consequently risk missing out on what could be a beneficial move.

The report argues how the potential of the Green Deal to offset energy cost increases will be lost unless it is made more attractive for small businesses to take advantage of. For that reason the FSB want the Government to use Green Investment Bank finance to guarantee low levels of interest rates for small firms to encourage extensive participation in the initiative.

Federation of Small Businesses National Chairman, John Walker, said:

“The Green Deal is a good thing – small firms want to be greener and save money on their energy bills. Our fear is that the scheme’s potential to help insulate small firms from future energy cost increases will be lost due to the unattractiveness of the scheme for non-domestic users. It is imperative to help small firms’ cash-flow that the Government look at how it can guarantee low rates of interest for small businesses.

“The reform of the electricity market and subsidies for other forms of low carbon generation mean that household and business energy bills are going to rise significantly in the coming years. Coupled with a raft of forthcoming environmental policies, the FSB is concerned that small firms will be disproportionately affected through continuing difficult economic times.”