Business price cap: how government will help with energy bills - and how businesses will get energy support
Liz Truss’s government has already introduced an energy bills support scheme for households, and is expected to announce tax cuts to help with the cost of living crisis
Announcements that are believed to be in the pipeline from key Cabinet ministers, include tax cuts and plans to tackle a possible NHS winter crisis. The fourth Conservative PM in six years has already outlined how she will help households with their energy bills.
One key package of support that was outlined today (21 September), was the long-awaited plan for how the government will help UK businesses with their energy bills this winter.
Unlike households, firms have not had an equivalent to the Ofgem energy price cap. It had led many sectors, including pubs and smaller traders, to warn they would be forced to shut unless action was taken by the government.
So, what has the government announced - and how will it work? Here’s everything you need to know.
What is the business price cap?
The government’s ‘Energy Bill Relief Scheme’ is the business equivalent of the Energy Price Guarantee Liz Truss announced in the House of Commons just hours before the Queen’s death on 8 September.
It will apply to all UK businesses, as well as charities and public sector organisations like hospitals and schools. Here are the support package’s key points:
- Support will run for a period of six months from 1 October 2022 to 31 March 2023. This is much less than the two-years the residential equivalent of the scheme will run for.
- Firms on fixed-term contracts signed on or before 1 April 2022, as well as those entering fixed deals after 1 October will have the wholesale energy price element of their power bills capped.
- The cap is £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas - roughly half the winter prices being forecast on the open market.
- Companies on default, deemed or variable tariffs will get a per-unit discount that could rise to around £405 per MWh for electricity and £115 per MWh for gas, depending on what happens to the market.
- If wholesale prices continue to soar, energy bills for businesses on these contracts will also rise.
The government said discounts to energy bills will be applied automatically. The first reduction in price will be seen in October’s energy bills, which are likely to be received in November.
An equivalent scheme is being launched in Northern Ireland, where the devolved Stormont Executive remains out of action due to a political row over the Northern Ireland protocol.
Heating oil is an important source of energy in Northern Ireland. The government says it will provide equivalent support to these energy customers in due course.
In three months, a review into the scheme will be published by the government. It says the review will influence whether it continues to offer this support after the six-month period has ended.
“I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods,” Liz Truss said.
“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.
“At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”
As with her domestic energy support package, Ms Truss made no mention of the need to ration energy this winter. Experts have warned supplies could be tight, especially if Russian President Vladimir Putin stops exports to continental Europe.
The PM has said she will boost the UK’s energy security by granting new licences for oil and gas exploration in the North Sea and ending a moratorium on fracking. Neither policy is expected to lead to commercial energy extraction in the short-to-medium term.
What has business said about government energy support?
Businesses have reacted positively to the government’s energy support announcement. But questions remain about what will happen when the package is due to come to an end next spring.
“We welcome [the] government’s quick and decisive action to provide hard-pressed businesses with a substantial short-term fix to a long-term problem,” said Matthew Fell, the chief policy director at the Confederation of British Industry (CBI).
“The package will ease worries about otherwise viable businesses shutting-up shop and smaller companies especially will benefit from the discounted rate.
“Businesses will also want to know more about the exit strategy and what happens when the six-month cap runs out. Working closely with business will be key to successful implementation.”
The CBI said it wanted to see the government pursue greater energy security for the UK and provide incentives for firms to boost energy efficiency.
Make UK, which represents the UK manufacturing sector, said the “simple to understand” scheme had provided “reassurance” to industry. But it warned its members were already “under huge pressure” with many “struggling to stay afloat”.
The hospitality industry also welcomed the government support announcement. It praised the “inclusiveness” of the scheme and said the support would secure jobs.
“Today’s announcement will give businesses some confidence to plan for immediate survival but we will not relent in our pursuit of a more comprehensive package to safeguard businesses and jobs,” said UKHospitality CEO Kate Nicholls.
“The levers of reduced VAT and business rates reliefs are still available to the Government, and there must also be a comprehensive package to ensure that there is no cliff edge when these measures fall away."