Liz Truss has announced a fresh package of support to cover the huge spike in energy bills this winter – this time for businesses. Earlier this month, she unveiled the “energy price guarantee” which will freeze annual bills for average households at about £2,500.
The help for businesses is intended to offer equivalent aid, freezing prices higher than they were last year but far lower than they would have been without intervention. Businesses had warned they would need to cut jobs or be forced to shut down without government help. Here’s what the measures mean for firms:
How does it work?
The government will provide a discount on unit prices for energy used by businesses. This will be calculated by comparing the estimated wholesale price a business will be paying over winter with a “government supported price”, expected to be £211 a megawatt hour for electricity, and £75 a megawatt hour for gas. The level of the discount depends on the type of contract, but the consultancy Cornwall Insight says it is about 45%.
Who is eligible?
The scheme is deliberately broad, encompassing all “non-domestic” contracts, including businesses, charities and public sector organisations such as schools. It covers those on fixed-price contracts agreed on or after 1 April 2022, those signing new fixed-price contracts in October, those on deemed or out-of-contract tariffs, and firms on flexible purchase contracts.
Who could miss out?
In theory, few businesses should fall through the cracks apart from energy generators themselves, including power stations. However, some firms will miss out if they signed contracts before 1 April when gas prices were already above historic highs, but before they shot up even further.
The Federation of Small Businesses has called for those energy customers to be allowed to switch to new fixed contracts without charge “if that makes the difference for the small business to survive”. It also highlights that those who have experienced high bills since April will not have received backdated support for those outgoings. Those on fixed-price contracts below the level of the cap are not eligible.
What happens if I’m on a fixed contract?
Energy suppliers will use government data to calculate the cost for those on a fixed-price contract. The discount offered will reflect the difference between the government-supported price and the relevant wholesale price for the day the contract was agreed. Prices for the wholesale price each day since 1 April will be published by the government.
What happens if I’m on a variable contract?
Businesses on variable contracts will receive a discount representing the difference between the supported price and wholesale price. However, this will be subject to a “maximum discount” that will be determined on 30 September, before the scheme kicks in.
It will be calculated using the average expected wholesale price for delivery during the six months of the scheme. That’s expected to be about £405 a megawatt hour for electricity and about £115 a megawatt hour for gas.
How long is this in place for?
The scheme will run for six months from 1 October, with certain businesses offered continued support immediately after. The government is yet to confirm which industries that could cover. A review of the scheme will be published in three months to inform a decision on continuing support.
What do I have to do?
Nothing. In theory, suppliers should now be able to automatically calculate a firm’s new bill and apply the discount accordingly.
What is the cost to government?
Estimates vary, in part due to unpredictable wholesale markets but also because businesses are on a wide range of contracts types and lengths. However, Cornwall Insight has put the cost at £25bn. Investec analyst Martin Young said the cost depended on the mix of contracts and how long the support lasted for, but could amount to between £22bn and £48bn.
