Energy relief capped at one-third of current scheme
A new energy scheme for businesses, charities, and the public sector has been capped at £5.5 billion, less than a third of the existing scheme, with smaller firms receiving only minimal support.
The Treasury confirmed today that the new scheme will mean all eligible UK businesses and other non-domestic energy users will receive a discount on high energy bills for 12 months from April.
It aims to help businesses locked into contracts signed before recent substantial falls in the wholesale price manage their costs and provide others with reassurance against the risk of prices rising again.
But unlike the current scheme, which effectively provides most businesses with a fixed wholesale price, the replacement scheme offers a discount on the bill, which increases their exposure to high market prices.
Andrew McRae of the Federation of Small Business in Scotland said that by switching the support from a cap to a discount on wholesale costs, businesses “are once again at the mercy of the global events that drive those prices”.
He added: “This creates more uncertainty. With a wholesale unit price cap, you can at least plan ahead. But with a mere discount on wholesale prices, many businesses will fear the next spike in energy costs and how high they might go. This will make it harder for firms to bid for fixed-price contracts, or to decide when, or if, they’ll open in the first half of the year.”
He said: “Small businesses have been calling for some certainty on energy prices for months, but many will be forgiven for wondering whether today’s statement was really worth waiting for.”
The Treasury points out that support for non-domestic users through this winter is worth £18 billion – equivalent to 3p on income tax – and has been clear that such levels of support unsustainable. The latest data also shows wholesale gas prices have now fallen to levels just before Russian President Putin’s invasion of Ukraine and have almost halved since the current scheme was announced.
The Treasury says the new scheme therefore strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets, with a cap set at £5.5 billion.
Chancellor Jeremy Hunt, said: “My top priority is tackling the rising cost of living – something that both families and businesses are struggling with. That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.
“Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine. But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.
“Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is needed to make sure the market is working for businesses.”
A substantially higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive – predominately manufacturing industries.
These firms are often less able to pass through cost to their customers due to international competition. But most businesses will receive discounts of only 0.7p per kilowatt-hour off their gas bills and 2p/KWh off their electricity bills.
Martin McTague, national chairman of the FSB, warned: “Many small firms will not be able to survive on the pennies provided through the new version of the scheme. Two pence off a kilowatt-hour of electricity and half a pence of gas is totally insignificant for small businesses.”
British Chambers of Commerce director general, Shevaun Haviland, said: “While we welcome the 12-month duration of this package, its value is nowhere near far enough and means that for some firms, energy will now be a cost too far.
“We understand Government must consider public finances, but any support package, short or long term, should be right for business – otherwise we’re going around in circles. The wrong type of support will continue to see business confidence deplete and Government having to revisit its package.”
Energy Bill Discount Scheme summary
For eligible non-domestic customers who have a contract with a licensed energy supplier, the government is announcing the following support:
- From 1 April 2023 to 31 March 2024, all eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill.
- This will be subject to a wholesale price threshold, set with reference to the support provided for domestic consumers, of £107/MWh for gas and £302/MWh for electricity.This means that businesses experiencing energy costs below this level will not receive support.
- Customers do not need to apply for their discount. As with the current scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers.
For eligible Energy and Trade Intensive Industries, the government is announcing:
- These businesses will receive a discount reflecting the difference between a price threshold and the relevant wholesale price.
- The price threshold for the scheme will be £99/MWh for gas and £185/MWh for electricity.
- This discount will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.
The Chancellor has also today written to Ofgem, asking for an update in time for the Budget on the progress of their review into the non-domestic market.
He has asked for their assessment of whether further action is needed to secure a well-functioning market for non-domestic customers following reports of challenges certain customers are facing, including in relation to the pricing and availability of tariffs, standing charges and renewal terms, and the ability of certain sectors to secure contracts.
Businesses will also benefit from support with their business rates bills, a UK-wide £2.4 billion fuel duty cut, a six month extension to the alcohol duty freeze and businesses with profits below £250,000 will be protected from the full corporation rate rise, with those making less than £50,000 – the vast majority of UK companies – not facing any corporation tax increase at all.