Business energy bill relief scheme: how is government changing support? What price cap changes mean for firms

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With the UK on the brink of recession and the cost of living crisis hitting consumer budgets, businesses have been calling for the government to extend its energy bills support

One of the most challenging elements of the UK cost of living crisis has been rocketing energy bills.

Prices soared in the wake of Covid-19 lockdowns before spiking to unprecedented levels when Russia invaded Ukraine in February 2022. Energy prices for households are currently capped at around double the rate they were in January 2022.

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The government has introduced several tranches of support for households. Liz Truss’s energy price guarantee means the average home is paying £2,500 a year for gas and electricity, while the energy bills support scheme is currently discounting domestic bills.

While the energy price guarantee was made less generous in the wake of Truss’s calamitous short term as Prime Minister - the average household bill will climb to £3,000 from April - a big question mark has been hovering over the business version of the energy price guarantee. The government is set to reveal what will happen in the House of Commons on Monday (9 January).

So what do we know about what will happen to the business price cap - and what does it mean for businesses?

Jeremy Hunt labelled the existing scheme as ‘unsustainable’ (image: PA)Jeremy Hunt labelled the existing scheme as ‘unsustainable’ (image: PA)
Jeremy Hunt labelled the existing scheme as ‘unsustainable’ (image: PA) | PA

What is the business price cap?

The energy bill relief scheme is the business equivalent of the energy price guarantee. Liz Truss introduced it after warnings businesses would struggle to make it through this winter without some form of energy bills support.

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Fish and chips shops told NationalWorld their future was under threat partly as a result of their energy bills, while pubs were already closing due to the issue. Not only were these businesses covered, but other organisations like charities, schools and hospitals were also included in the support package.

When it was launched in September, the scheme was legislated to run for six months between 1 October 2022 and 31 March 2023. Like the energy price guarantee, it capped prices at wholesale level which basically meant the government was paying energy suppliers for the difference between wholesale energy prices and its cap - a risky move that exposed it to big, potential hikes in public borrowing.

The cap for businesses on fixed deals was set at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas - roughly half the winter prices that were being forecast on the open market at the time of the scheme’s launch. Companies on default, deemed or variable tariffs had a looser arrangement - a per-unit discount that could see their bills rise to around £405 per MWh for electricity and £115 per MWh for gas if wholesale prices went up.

A review was scheduled by Truss to be published in early January. Its findings were due to determine whether the support should continue beyond the spring.

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Chancellor Jeremy Hunt promised an announcement on the scheme’s future at Christmas time, but it has been pushed back well into the new year.

Liz Truss launched the business energy price cap in September 2022 (image: Getty Images)Liz Truss launched the business energy price cap in September 2022 (image: Getty Images)
Liz Truss launched the business energy price cap in September 2022 (image: Getty Images) | Getty Images

What will happen to business energy price cap?

According to advance briefing, the government will make this support much less generous when it reveals new plans to MPs on Monday (9 January).

In a meeting last week, Chancellor Jeremy Hunt told business leaders that the scheme in its current form was “unsustainably expensive” and had cost £18 billion. He also said the scheme was “always time-limited to six months”

From April, it is understood the government will pay for a discount on wholesale prices rather than set a specific price cap. It means business energy bills will rise if wholesale prices go up. Overall, the scheme will run for another 12 months.

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Energy-intensive industries, like steelworks, will get a bigger discount on their energy bills (image: AFP/Getty Images) Energy-intensive industries, like steelworks, will get a bigger discount on their energy bills (image: AFP/Getty Images)
Energy-intensive industries, like steelworks, will get a bigger discount on their energy bills (image: AFP/Getty Images) | AFP via Getty Images

Energy-intensive industries - like glassmaking, steelworks and ceramics - will get a larger discount. Lobbying for the inclusion of other big energy users, like car manufacturers, appears to have been unsuccessful.

It is expected the announcement will be welcomed to some extent by trade bodies, but any major cut to the support is likely to lead to warnings of job losses and business failures.

It might even be too late to avoid such a scenario after a survey released on Monday (9 January) by manufacturing trade body MakeUK and accountants PwC showed businesses were already struggling despite the energy bills support. Its poll of more than 200 senior manufacturing executives found that two-thirds of the sector envisaged having to reduce production or cut their workforce due to high energy costs - even if the government continued its support.

A looming recession is set to see some businesses struggle to survive (image: AFP/Getty Images)A looming recession is set to see some businesses struggle to survive (image: AFP/Getty Images)
A looming recession is set to see some businesses struggle to survive (image: AFP/Getty Images) | AFP via Getty Images

“While an extension of the energy relief scheme will be welcome, to date it has just been a sticking plaster and making it less generous will make the situation worse for many companies,” said MakeUK CEO Stephen Phipson. “In fact, there is a very strong and urgent case for matching the more generous schemes our competitors have in place.”

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It comes as businesses face up to the prospect of the dual pressures of a major UK recession and the cost of living crisis. High interest rates introduced by the Bank of England to curb inflation have already made it harder for businesses to invest and grow, while consumers have been cutting back spending in the face of soaring bills.

Additional reporting by PA

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