Business energy bill support to be reduced after March, Treasury confirms

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Businesses will receive reduced support for their energy bills from the end of March as the Treasury attempts to cut the cost of compensating for soaring gas and electricity prices, the UK government has confirmed.

James Cartlidge, the exchequer secretary to the Treasury, said on Monday that the government would provide ?5.5bn of “transitional support” for businesses over 12 months from 1 April 2023.

Cartlidge said that the government’s funding of the Covid vaccine rollout, furlough and support for Ukraine had been “right but all have come at a cost”.

He said: “It is not for the government to habitually pay the bills of businesses.”

Under the plan, non-domestic energy customers – including businesses, schools and charities – will receive a discount of ?6.97 per megawatt hour for gas, and ?19.61 per MWh for electricity. Cartlidge said this was the equivalent to a ?2,300 saving for a pub, or ?400 for a typical small retail store.

Businesses with energy costs below ?107 per MWh for gas and ?302 per MWh for electricity will not receive support.

Major manufacturers with high energy bills – such as steel, glass and ceramic producers – will receive a greater 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-edge” end to support this spring, which businesses had raised concerns about.

The existing scheme, which began in October, capped the unit cost of gas and electricity for all businesses until the end of March. Under the programme, the Treasury funded a discount on non-domestic customers’ bills, covering the difference between wholesale prices and a “government-supported price” of ?211 per MWh for electricity and ?75 per MWh for gas.

The Treasury has now replaced that scheme with an initiative that offers a discount on wholesale prices rather than a fixed price.

The move mirrors a similar reduction to the energy price guarantee for domestic energy consumers announced by the chancellor, Jeremy Hunt, in November. The EPG originally limited the typical annual household bill to ?2,500 but that will be adjusted from April to a limit of ?3,000 for a further year.

The government said last week that the non-domestic energy scheme was “one of the most generous in Europe” but added: “o government can permanently shield businesses from this energy price shock.”

The cost of the support to the Treasury has been estimated at about ?18bn for the six months until the end of March. However, the burden to the public purse will shrink as the scheme becomes less generous and if a recent fall in wholesale gas prices is sustained.

Hunt had been expected to announce the revamp to the scheme in December but the delay has left businesses hanging on to calculate their energy budgets for 2023.

Hunt said on Monday that he had raised concerns with Ofgem, the energy regulator for Great Britain, that discounts were not being passed on by suppliers to customers.

Make UK, an industry group that represents 20,000 UK manufacturers, has said cutting financial support would reduce factory output and exacerbate job losses.

Fiona Graham, the director of external affairs and policy at the Institute for Family Business, said: “With the new scheme applying a discount to wholesale prices, we hope to see bills stabilise as direct result of the recent fall in energy prices, driven by warmer weather this winter.

“In the short-term, however, government must do all it can to ensure that energy companies pass on these reductions to customers.”

Separately on Monday, the government laid out proposals to incentivise investment into low-carbon technologies and avoid electricity blackouts.

The revamp of the capacity market – which is designed to ensure there is reliable electricity supply regardless of the weather – will make it easier to prevent blackouts if intermittent sources of renewable energy are not available.

The government launched a consultation on proposals to introduce contracts aimed at encouraging new green energy projects and to come up with timelines for oil and gas producers to reduce emissions from new plants from 2034.

The climate minister, Graham Stuart, said the plan would deliver “reliable energy and ensure the scheme that sits at the heart of Britain’s energy security is fit for the future”.