Businesses in the UK will have their energy bills capped for six months this winter in a major government support package. The UK Government has stepped in to announce a temporary measure which will see gas and electricity prices for companies fixed for six months in a bid to alleviate soaring costs.
The move, which will also apply to companies, charities, and public sector organisations including schools, expands on Prime Minister Liz Truss' announcement earlier this month that a typical domestic energy bill will be capped at £2,500 per year for two years. You can read more about that here.
UK Government business secretary Jacob Rees-Mogg said the plans would give struggling traders and organisations "the equivalent level of support" as the domestic help scheme with energy costs set to ramp up this winter. We've broken down exactly what has been announced and asked a number of business owners whether the new measures help them this winter.
Read more: 'We might not be here next year': The mounting challenges facing Wales' hospitality industry
What has been announced?
The main points in the announcement on Wednesday are:
- Wholesale energy prices are expected to be fixed for all non-domestic energy customers at £211 per MWh (21.1p per kWh) for electricity and £75 per MWh (75p per kWh) for gas.
- Companies do not need to contact suppliers as the discount will automatically be applied to bills with savings seen from October but received from November
- The scheme will apply to fixed contracts agreed on or after April 1 and variable and flexible tariffs and contracts.
Does it apply in Wales?
Similar to the domestic cap announced earlier this month the new plans to help businesses are set by Westminster and apply in Wales as the Welsh Government is not responsible for setting energy prices. There are a number of support schemes in place – both by the UK Government and Welsh Government – to help those hardest hit by the cost of living crisis. You can find out more about that here.
Will some businesses miss out?
Due to the nature of the scheme the vast majority of businesses should see a reduction in their bills. However those who signed contracts before April 1 are not eligible. 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”. Given how much prices have gone up since April it's also possible that firms with rates fixed since before that date would be on a lower rate anyway.
What happens after six months?
It isn't clear what support will be available for businesses after the six-month period ends. Liz Truss has indicated that the subsidies could be extended for the most vulnerable businesses but no detail on how that might be decided has been given.
How much will it cost?
The cost to the government is unknown as it will depend on wholesale energy markets. However the consultancy Cornwall Insight estimated the scheme will cost the government £25bn and represents a 45% discount on last week’s wholesale energy prices.
Will it actually help businesses?
Speaking to business owners in Wales the announcement was met with cautious optimism. Sam Dabb, who runs Le Pub in Newport, said the reduction would be a great help to businesses heading into the winter.
"If it truly is 21.1p our bills will drop by 50%," she said. "Our current contract is up next week and the best we could find was 47.9p per kw/h. Over the six months of the price cap it will save us around £8,000.
"Hospitality actually have pretty much the biggest draw when it comes to energy and small business [with] all the fridges and cellar cooling and things. This is great news for anyone not in a fixed-rate contract or in a contract that’s coming to an end like ours.
"I think anyone still in a fixed contract will be on a lower rate than that anyway. April 1 was when things started to get stupid." Sam said businesses could still receive more help both from Westminster and the Welsh Government.
"Rates for hospitality and retail in wales are currently 50%. I’d love to see that carry on for another year after April. And a VAT cut is always welcome but that has to come from Westminster not the Senedd so it’s unlikely."
Nick Newman is chair of Cardiff Licensees Forum and works for Croeso Pubs Limited which owns a number of popular Cardiff businesses including The Philharmonic, Brewhouse, Blue Bell, Daffodil, and Retro. He said: "From what I've read and from speaking to other businesses it's broadly welcomed and a step in the right direction but we've got to check the detail. I don't want to be too downbeat.
"Businesses are cautiously optimistic about it and its recognition that hospitality has been singled out as one of the sectors that needs extra help. We're always saying there's lots more the government can do. We feel they could go further towards helping business resources which have been depleted, a reduction in the VAT rate, and those additional things that would help.
"A pub could be the size of the Prince of Wales with a 2,000 person capacity or Blue Bell which holds 80 people. I would hope there would be an element of parity but we will have to look further at the details.
"Given that businesses get locked into contracts for a year it would obviously be nice if arrangements matched that but the changes are broadly welcomed. Obviously the government has acted – we know there have understandably been other priorities with the death of the Queen so we welcome the fact that they have done this."
Publican Jon Bassett owns a number of popular pubs including the Queens Vaults and Four Elms in Cardiff, the Golden Lion in Penarth, and The Carpenter's and the Pen and Wig in Newport. He said businesses would likely face major pressure this winter even with the support.
"My view is that although the relief would avoid you definitely going out of business the proposed relief tariff will put the business into extreme pressure as it’s still a large increase on current [costs]," he said. "Add the pressure that our customers will have with increased costs and it’s a perfect storm coming."
Emily Fry, economist at the Resolution Foundation, said the scheme "strikes the right balance of preventing firms being hit with soaring bills this winter, while encouraging them to become more energy efficient, and avoiding giving support to firms on longer-term energy contracts who frankly don’t need it". She added: Today’s package requires another large cheque from a government already grappling with higher borrowing. But unlike with support for households that cheque is not blank – reflecting limits on the size of the discount firms can receive.
“Overall the government’s energy bills support package is welcome but expensive and could easily cost over £100bn. The refusal to cover more of this cost with windfall and solidarity taxes will add pressure on the Bank of England to up the pace and scale of interest rate rises, which will start to be felt by mortgagors in the months ahead.”
What has the Welsh Government said?
Economy minister Vaughan Gething issued a statement responding to the scheme. He said the discounts should be passed on "without delay" and warned the measures alone may not be enough to save businesses which are already struggling. “While the support is welcome it may not be sufficient for many of Wales’ small and medium-sized businesses which are facing up to six-fold price increases in their energy bills. A high proportion of these businesses are already struggling to break even post-pandemic.
“Wales’ small businesses are the backbone of our communities providing vital jobs and incomes for local people and part our foundational economy. If these businesses fail we will see increased unemployment, increased vulnerability, and disruption to important supply chains.
“The measures provide businesses with only a temporary respite and little certainty to help them plan ahead. Many will be forced to close if they are not sufficiently supported. Therefore I call upon the UK Government to commit to a longer-term plan to give more certainty to enable businesses to cope with persistent high energy costs
“We are closely scrutinising the UK Government support announced today to see whether there is more we can do to support Welsh businesses. This includes looking at ways of helping businesses reduce energy usage or increase energy efficiency. However, let’s be clear, the main levers to support businesses rest firmly and squarely with the UK Government.”
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