Energy bill support for firms set to be cut

Waiter serving food
Waiter serving food

A new scheme to support firms with their energy bills will be announced in the House of Commons on Monday.

The current scheme which caps the unit cost of gas and electricity for all businesses expires at the end of March.

It will be replaced with a new scheme that offers a discount on wholesale prices rather than a fixed price.

Very heavy energy-using sectors, such as steel, glass and ceramics, are expected to get a larger discount than others, Treasury sources said.

The BBC understands the definition of what counts as an energy-intensive user will also be broadened as part of Monday's announcement.

The business group, the CBI, has been calling for sectors including car manufacturing and chilled food processing to be included in the definition.

Last week, Chancellor Jeremy Hunt told industry leaders that the current scheme to support businesses was "unsustainably expensive".

The energy support scheme is mainly used by businesses, but is also for charities, and public sector organisations such as schools and hospitals.

Firms have been warning of a "cliff-edge" when the current support stops at the end of March, and the new scheme is expected to run until March 2024 to avoid this.

But the total level of government support is expected to fall sharply - by more than half - from the £18.4bn the current six-month scheme is estimated to have cost by the time it ends.

This is partly due to wholesale energy prices falling very sharply in recent months.

European gas reserves have held up better than expected thanks to an unusually mild winter in northern Europe.

Wholesale gas prices are now below the level they were before Russia's invasion of Ukraine, but still three to four times higher than their long-term average.

Annette Dolan, managing director at Bath Aqua Glass, a glass-blowing company, said that even with the fall in prices she is looking at an annual energy bill of £119,000 a year. "And that's before they put the standing charge on so it is still unobtainable," she told the BBC.

Bath Aqua Glass managing director Annette Dolan
Bath Aqua Glass managing director Annette Dolan

She said that the government should have capped wholesale prices from the beginning, and she warned that if prices don't come down further she will have to start letting staff go.

"I'm going to have to work with the smallest amount of people to keep going because that's the only way a small business can keep going."

All businesses can expect their energy bills to rise after March. However, Matt Snell, chief executive at Gusto Restaurants, told the BBC that the current help from the government "has not really touched the sides".

He said his company normally spends around £750,000 on energy a year. "And even with the so-called government support in place our bill went up by over £800,000 so it is forecast to be £1.5m for this year," he said.

Gusto Restaurants chief executive Matt Snell
Gusto Restaurants chief executive Matt Snell

He questioned whether providing a discount on wholesale prices would help businesses who face other major energy costs. He said that energy companies are asking for "ridiculous" deposits to enter into contracts with businesses: "We ourselves at Gusto had to pay £150,000 just to enter a contract."

Meanwhile the cost of actually delivering energy to businesses was high and he called for Ofgem, the regulator, to get involved.

"What a lot of people don't understand is that the cost for delivery to your building can almost double what the wholesale cost of gas is and that is completely unregulated," he said.

At the same time that help for businesses is changed, government support for households will become less generous.

The bill for a typical household could rise from £2,500 a year to £3,000 a year from April - although energy analysts cautiously forecast that average bills may fall to £2,800 a year next October if current market conditions continue.

That would be a crumb of comfort for households and could save the government billions in subsidies.

But the bottom line is that energy prices are going up this year for businesses at the same time as their customers' incomes are being squeezed even further.