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A new energy scheme for businesses, charities, and the public sector has been confirmed by the Government, ahead of the current scheme ending in March.
The new scheme will mean all eligible UK businesses and other non-domestic energy users will receive a discount on high energy bills until 31st March 2024.
The Chancellor of the Exchequer, Jeremy Hunt, said:
My top priority is tackling the rising cost of living – something that both families and businesses are struggling with. That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.
Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine. But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.
Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is action is needed to make sure the market is working for businesses.
Energy Bill Discount Scheme summary:
For eligible non-domestic customers who have a contract with a licensed energy supplier, the government is announcing the following support:
- From 1 April 2023 to 31 March 2024, all eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill.
- This will be subject to a wholesale price threshold, set with reference to the support provided for domestic consumers, of £107/MWh for gas and £302/MWh for electricity. This means that businesses experiencing energy costs below this level will not receive support.
- Customers do not need to apply for their discount. As with the current scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers.
For eligible Energy and Trade Intensive Industries, the government is announcing:
- These businesses will receive a discount reflecting the difference between a price threshold and the relevant wholesale price.
- The price threshold for the scheme will be £99/MWh for gas and £185/MWh for electricity.
- This discount will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.
Responding to the Government’s announcement that energy support for small firms is to be slashed, Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:
The decision to all but eliminate help through the Energy Bill Relief Scheme (EBRS) is a huge disappointment for small businesses. For those struggling, the discount through the new version of the scheme is not material. Many small firms will not be able to survive on the pennies provided through the new version of the scheme.
This is so out of touch. Two pence off a kWh of electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer. The Government will inevitably have to come back.
The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither.
While the New Year should be a time of optimism and excitement, 2023 looks like the beginning of the end for tens of thousands of small businesses, which have been relying on the government energy support to survive this winter.
In addition to the withdrawal of the vast majority of support to cope with high energy prices, this decision also risks stoking inflation as small businesses bills rise, but their prices will rise at the same time. The EBRS original scheme suppressed inflation by 5% points, but this has been cancelled, today. Slashing support will drive higher inflation, just as we enter a recession.
Our latest research shows one in four small firms anticipate either closing, downsizing, or radically changing their business model when the Government reduces energy support after March. Five days after the Prime Minister’s pledges to restore optimism and hope and grow the economy, small firms will feel let down by the Prime Minister’s decision to call in the scheme decision planned for December, and cutting back the scheme to such a minimal state.
What’s certain from this catastrophic move is there’ll be a cliff edge after March. The small fish and chip around the corner, your local pub, and the family-run independent laundrette – all will see much higher bills. That’s on the Government.
Gambling that wholesale energy prices will continue to fall this year is transferring the risk of further energy price shocks to small businesses. Think of the children’s nursery in East Sussex which saw its energy prices reduce from £1,200 to £600 per month by the EBRS and the small engineering company in Leicester which is facing a 500% increase in gas bills – they will have no way to mitigate a sharp jump in energy costs.
Dividing the scheme into two tiers is sensible, but not so that the tier of support for any small businesses lighting or heating premises, or using freezers or ovens, has been set so low as to mean support diluted to such a feeble level. It would have been better value for money for small firms if the £2bn cost of their element of the scheme had been used to improve energy efficiency, to reduce the need for energy from the grid.
The government said that taxpayers cannot prop up failing or unproductive firms, which is insulting to many small business owners struggling this winter.
Since the onset of Covid, we’ve lost half a million small firms. Allowing more well-run businesses to go under would be a false economy. But with this absurd degraded Energy Bills Discount Scheme, it looks like we’re getting there.
