Is Jeremy Hunt about to reduce energy bill support for businesses?
Christmas is just days away and business owners across the country are nervously waiting for a much-needed present from the government. The chancellor, Jeremy Hunt, is expected to announce an extension as early as this week to a support scheme to help businesses with their energy bills, which is due to end in March. Hunt faces a choice between piling on further costs to the Treasury or seeing companies go bust without intervention.
How did we get here?
After months of pressure and warnings that businesses would be forced to shut down without support, the former prime minister Liz Truss announced the energy bill relief scheme to complement the energy price guarantee, which limits the cost of bills for households. The scheme launched on 1 October and runs until 20 March. It covers all “non-domestic” contracts, including businesses, charities and public sector organisations such as schools.
How does the scheme work?
The government provides a discount on unit prices for energy used by businesses. This is calculated by comparing the estimated wholesale price a business will pay over the winter with a “government supported price”, set at £211 a megawatt hour for electricity, and £75 a megawatt hour for gas. Businesses on variable contracts receive a discount representing the difference between the supported price and wholesale price.
The maximum discount was originally suggested at £405 a MWh for electricity and £115 for gas but was later reduced to £345 for electricity and £91 for gas. Industry sources said the scheme has been “incredibly complex to implement” and there is still confusion among some suppliers over how to correctly bill their clients.
What is happening now?
When the scheme was announced, the government indicated that certain industries would continue to receive support beyond March. However, three months on there is no clarity on which sectors are likely to be covered. Reports over the weekend suggest support could remain in place for all industries. The Sunday Times said support could be extended for up to a year – but the package could be far less generous. Treasury sources have said “lots of options” remain on the table. Hunt said last week that an announcement would come “either just before or just after” Christmas.
Which industries are worst hit without support?
Manufacturers that make anything from steel and chemicals to paper and glass are part of an industry group of energy intensive users.
Rob Flello, chief executive of the British Ceramic Confederation, says: “While we welcomed the government’s non-domestic energy bill relief scheme as a lifeline, their announcement of a review sparked concern. We warned that if government support was downgraded, then this industry would be on a cliff edge. The government must not leave us in a precarious position.”
Beyond the manufacturers, the hospitality sector has been vocal in asking for further support. Data compiled for the British Beer and Pub Association showed that energy bills returning to their regular rate from April would put pubs and brewers at a loss of 20% on average.
What are the options?
Prolonging the existing scheme, covering all sectors at the same level, would appear the simplest option, but also the most expensive. It has been estimated that the six-month scheme alone could cost as much as £48bn. The fact that wholesale gas prices have not fallen sharply – and are expected to remain high next year – does not help the outlook for the cost to the government. Hunt may decide to push on with tailoring the scheme but industry sources warn that suppliers do not all carry data on which sectors their customers operate in.
Another option could be to provide top-up subsidies for energy intensive sectors as well as hospitality and consumer-facing businesses.
In his autumn statement, Hunt extended the energy price guarantee for a year from April, but made it less generous (typical annual bills will rise from £2,500 to £3,000). He could opt to replicate this with businesses. Tony Jordan, a senior partner at the consultancy Auxilione, says: “Businesses will want to see a continuation of the current scheme in the same form. I’m expecting it to be extended in the same way as the domestic scheme, at a less generous level with a higher bar in terms of the discount.”