The Government has announced much-needed new support for businesses to reduce soaring energy bills.
Through the new Government Energy Bill Relief Scheme, the Government will provide a discount on wholesale gas and electricity prices for all non-domestic customers, including all UK businesses, the voluntary sector and the public sector.
Liz Truss’s first major announcement as Prime Minister is a response to rising gas and electricity prices, which have been significantly inflated in light of global energy prices. This business support will be equivalent to the Energy Price Guarantee put in place for households.
Energy bills for UK businesses will typically be cut by around half their expected level this winter under the support package. It will apply to fixed contracts agreed on or after April 1 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from October 1, 2022 to March 31, 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.
As with the Energy Price Guarantee for households, customers do not need to take action or apply to the scheme to access the support. Support (in the form of a p/kWh discount) will automatically be applied to bills.
To administer support, the Government has set a Supported Wholesale Price, a discounted price per unit of gas and electricity. – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter.
The level of price reduction for each business will vary depending on their contract type and circumstances:
- Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.
- Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. This is why the Government is working with suppliers to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support.
- For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.
A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market fundamentals, will be established in Northern Ireland.
- If you are not connected to either the gas or electricity grid, equivalent support will also be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas. Further detail on this will be announced shortly.
The Government will publish a review into the operation of the scheme in three months to inform decisions on future support after March 2023.
Ms Truss said: “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.
“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.”
NFU President Minette Batters said: “We welcome the detail announced today in the energy support package which will provide a much-needed cushion for farmers, growers and food businesses who are vulnerable to high wholesale energy prices.
“Given the package does not cover limits on standing charges, it’s essential the government continues to assess the full impact that energy bills will have on business confidence and production.
“We also need urgent clarity on what support will be available for food businesses after the initial six month period. Energy plays a core role in the production of our food and throughout the food supply chain, from fertiliser production and heating glasshouses and livestock buildings, to baking bread and keeping facilities clean. We simply can’t produce the food the nation needs without affordable energy.
“Because of this close link between energy and food, the government must prioritise access to affordable energy for food production and the food supply chain. Continued support will be key to curtailing food price inflation going forward and ensuring the provision of affordable, nutritious, climate-friendly food for the country.”
NPA senior policy adviser Charlie Dewhirst said: “This is very welcome news for an industry that is facing eye-watering energy prices over the winter, on top of continued high input costs.
“In the last two years, the sector has lost £600 million and contracted by at least 20%. Energy price inflation has been the final nail in the coffin for some producers but this new scheme will hopefully ease the financial pressures on others who have survived up to this point.”
Martin McTague, National Chair of the Federation of Small Businesses, said: “Small businesses called for decisive action – now the government is delivering. With small firms the least able to avoid closure and 16 million employees relying on them, Ministers have listened to our community and got this big call right. Now it’s up to energy retailers to live up to the high bar set today and make sure this help reaches those on the ground.”
Food and Drink Federation CEO Karen Betts said: “We welcome the scope of the Government’s Energy Bill Relief Scheme and the speed with which it’s being rolled out. It addresses the largest and most volatile cost pressure facing our industry right now. Although some aspects of the scheme are still to be clarified, it offers relief to food and drink manufacturers across the UK.”
Association of Independent Meat Suppliers spokesman Tony Goodger said: “The support package will help to calm the nerves of some businesses.
“However, as today’s announcement is for just 6 months and our member’s businesses as well as the businesses they supply are energy intensive users and it is essential for their business planning that the Government provides further details as to what will happen to energy bills from 1st April 2023 as soon as they are able to.”