Business leaders across the South West have warned smaller firms across the region are at risk of closing after the government significantly slashed its support with energy bills.
On Monday (January 9) ministers announced that from April £5.5bn would be allocated to help businesses, charities and schools pay their bills over the next 12 months.
A saving of £6.97 is set to be made for every megawatt hour (MWh) of gas used. Electricity bills will also be discounted by up to £19.61 per MWh.
The government also announced that energy-intensive users, such as some factories that burn a lot of gas, will get extra support.
The new scheme will cost the government considerably less than its current energy support package, which it has put £18bn of public money into over just six months.
According to the government website, under the previous scheme a pub that uses 16 MWh of gas and 4 MWh of electricity each month could have been given around £3,100 per month in support. Under the new scheme the same pub will get £190 per month.
Ian Girling, chief executive of Dorset Chamber, welcomed the continued support, but added the new deal would provide “cold comfort” for many companies in the county.
Mr Girling said: “Although continued assistance and the 12-month duration of the scheme is welcome, the 85% drop in the financial envelope of support will fall short for those who are seriously struggling – and these costs are significant enough to cause the closure of businesses.
“Clearly, the government must consider the public finances but the correct level of support must be viewed as an investment in business to help turn the economy around and get the UK back to growth and prosperity in a critical year ahead.”
Mr Girling urged Chancellor Jeremy Hunt to consider additional assistance if required, and proposed a potential strengthening of energy regulator Ofgem’s powers, as part of a strategy to promote longer-term market stability and improve firms’ energy efficiency.
Claire Ralph, policy manager at Bristol-based chamber Business West, said “the vast majority” of the new support has been targeted to heavy industrial energy using sectors, with a “worryingly small amount” for the rest of the business community.
Ms Ralph said that the threshold of the new scheme was “too high”, adding it would “switch off” when wholesale prices fall below record highs seen last year. She said at this point no discount would be provided, with businesses still under “extreme pressure” from inflation.
“Detail of this scheme, and the fact it will be in place until April 2024 provides much needed certainty for businesses in our region, which Business West welcomes. But the scale of the intervention seems inadequate for the needs of business at this time, and the design of the scheme prioritises some groups for the limited funds available, meaning that the remainder is extremely thin.
“We worry about the consequences of energy prices as a further drag on business profitability throughout 2023 for otherwise viable and sustainable firms in the South West.”
Mark Grant of Gloucestershire-based business finance broker, The Business Finance Branch, said the removal of the energy price cap would spell “the end of the road” for many businesses.
Mr Grant said: “For those that are able to survive it, the fact that the replacement scheme is tied to wholesale prices will introduce a phenomenal amount of uncertainty and hamper any financial planning. Investment and recruitment will be affected for those with expansion or growth plans as they cannot forecast their outgoings.
“75% of conversations with our clients currently are to help with working capital and keep cash flowing. Monday's announcement will only make things worse. This is yet another hammer blow for UK businesses when they are already down.”
Business secretary Grant Shapps defended the scaling back of support, saying a “responsible government has to make those difficult choices”.
When it was put to him that companies having to put up prices as a result of the move would not counter inflation, the Business Secretary told LBC Radio: “It’s fair to acknowledge that when you do anything, make any of these policy decisions, you’re always balancing an array of often quite difficult choices.
“In this case, more borrowing and more tax against supporting businesses and what the Chancellor’s tried to do is balance both of those things.
“What I am saying is a responsible government has to make those difficult choices between do you put up tax, do you run the risk of higher mortgage rates and loan rates for businesses – we saw what happened with that before – or do you kind of ease back to a normal situation where governments don’t normally intervene and support energy bills.”
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