Businesses will receive reduced support on their energy bills from the end of March as the Treasury tries to reduce the cost of compensating for skyrocketing gas and electricity prices, the UK government has confirmed.
James Cartlidge, Chancellor of the Exchequer at the Treasury, said on Monday that the government would provide £5.5bn of “transitional support” for businesses over the 12 months from 1 April 2023.
Cartlidge said the government’s funding of the Covid vaccine rollout, leave and support for Ukraine was “right, but it all came at a price”.
He said: “It’s not up to the government to usually pay the bills of businesses.”
Under the plan, non-household energy consumers – including businesses, schools and charities – will get a discount of £6.97 per megawatt hour for gas and £19.61 per MWh for electricity. Cartlidge said this was the equivalent of saving £2,300 for a pub or £400 for a typical small shop.
Businesses with energy costs below £107 per MWh for gas and £302 per MWh for electricity will not receive support.
Large manufacturers with high energy bills – such as steel, glass and ceramic manufacturers – will get a bigger discount, equivalent to £7,000 of support over 12 months, the government said.
The new scheme will run until March 2024 to avoid a “cliff” end to support this spring, which businesses have expressed concern about.
The existing scheme, which began in October, capped the unit price of gas and electricity for all businesses until the end of March. Under the programme, the Treasury funded a rebate on foreign customers’ bills, covering the difference between wholesale prices and a “state-supported price” of £211 per MWh for electricity and £75 per MWh for gas.
The Finance Ministry has now replaced that scheme with an initiative that offers a discount on wholesale prices instead of a fixed price.
The move mirrors a similar cut to the energy price guarantee for domestic energy consumers announced by Chancellor Jeremy Hunt in November. The EPG originally capped a typical annual household bill at £2,500, but from April it will adjust to a limit of £3,000 for next year.
The government said last week that the non-household energy scheme was “one of the most generous in Europe”, but added: “The government can permanently protect businesses from this energy price shock.”
The cost of support to the Treasury is estimated at around £18bn for the six months to the end of March. However, the burden on the public purse will decrease as the scheme becomes less generous and if the recent fall in wholesale gas prices is sustained.
Hunt was expected to announce the overhaul of the scheme in December, but the delay has left companies waiting to calculate their energy budgets for 2023.
Hunt said on Monday he had raised concerns with Ofgem, the UK’s energy regulator, that suppliers were not passing on discounts to customers.
Make UK, an industry group representing 20,000 British manufacturers, said cutting financial support would reduce factory output and exacerbate job losses.
Fiona Graham, director of external affairs and policy at the Family Business Institute, said: “With the new scheme applying a discount to wholesale prices, we hope to see a stabilization of bills as a direct result of the recent fall in energy prices, driven by warmer weather this winter.
“In the short term, however, the government must do everything it can to ensure that energy companies pass those cuts on to customers.”
Separately on Monday, the government outlined proposals to boost investment in low-carbon technologies and avoid blackouts.
The overhaul of the capacity market – which is designed to ensure a reliable supply of electricity regardless of the weather – will make it easier to prevent blackouts if intermittent sources of renewable energy are not available.
The government has launched a consultation on proposals to introduce contracts aimed at encouraging new green energy projects and finding deadlines for oil and gas producers to reduce emissions from new plants from 2034.
Climate Secretary Graham Stuart said the plan would deliver “reliable energy and ensure the scheme at the heart of Britain’s energy security is fit for the future”.