17 January 2023 – Last week the Chancellor announced details of the new Energy Bill Discount Scheme for Businesses, which will start on 1 April 2023. It will replace the current relief scheme, but many small businesses think that the reduced energy bill support will not be enough.
After months of uncertainty, Jeremy Hunt has finally provided details on what help businesses will get after March 2023.
The current Energy Bill Support Scheme for businesses will end in March. Initially, the Chancellor said that after this date, only vulnerable sectors will receive support with energy bills.
However, last week he confirmed that all businesses will get further help, albeit it will be a reduced energy bill support.
Energy Bill Discount Scheme For Businesses
Under the current scheme, which was introduced in October 2022 and will end in March 2023, non-domestic energy customers received a discount. This covered the difference between the wholesale price and a price set by the government, effectively capping the price businesses pay.
The “government-supported price” was set at £211 per MWh for electricity and £75 per MWh for gas.
With the new scheme, businesses will receive a discount on the wholesale price, rather than a cap on the price they pay. But the discount only applies if wholesale prices are above £107 per MWh for gas and £302 per MWh for electricity.
If wholesale prices are above this level, businesses will see a discount of up to £6.97 per MWh on their gas bill and up to £19.61 per MWh on their electricity bill. There is no need to apply for the discount, it will be applied automatically by the energy supplier.
Trade and Energy intensive sectors, mainly manufacturing, will receive a much higher level of support. These sectors cannot pass on increased costs to their customers as easily, due to international competition, so the Government.
They will continue to get a discount on the difference between the wholesale price and a government-set price.
This price has been set at £99 per MWh for gas and £185 per MWh for electricity. However, the discount will only be applied to 70% of the energy used and there is a cap on the discount too.
Eligible businesses can get a maximum discount of £40 per MWh for gas and £89.10 per MWh for electricity.
The new scheme will run until March 2024. The reason for the reduced energy bill support given is to protect taxpayers from the volatile energy markets. Funding for this scheme is therefore caped at £5.5 billion.
How This Affects Small Businesses
The reduced support will mean that energy bills will go up for millions of small businesses. For many, the discount will only save them pennies, which will put them at risk of going out of business.
Businesses who are on a fixed-rate deal will see a sudden hike in prices when the current scheme ends. A business with a fixed-rate contract for 75p per kWh (kilowatt hour) only pays 21.1p under the current scheme.
But under the new scheme, the same business will only get a 2p discount and will have to pay 73p per kWh.
Because non-domestic energy contracts work differently to domestic ones, businesses are locked in to their deal for up to five years. This means they cannot cancel and look for a better deal, prompting many small business owners to contemplate the future of their business.
Businesses who are on variable tariffs will not see such a hike in their energy bills, because wholesale prices have recently fallen. They are now at the same level as before Putin’s invasion of Ukraine.
However, the energy market is still very volatile and prices could rise again, leaving these businesses vulnerable to increasing costs. As the discount is capped, escalating prices would mean that small businesses on variable rates would see their bills soar.
This could mean that many small businesses are unable to afford their energy bills, forcing them to close down.
We will definitely see more businesses close, and if energy prices go back up to the high levels we’ve seen before, the number of closures will be much higher.Paul Wilson, Policy Director at the Federation of Small Businesses
Reaction From The Business Sector
The Federation of Small Businesses (FSB) has called the new scheme a “huge disappointment”.
For those struggling, the discount through the new version of the scheme is not material. Many small firms will not be able to survive on the pennies provided through the new version of the scheme.Martin McTague, National Chair of the Federaion of Small Businesses
The Confederation of British Industry acknowledged that the current scheme would have been unaffordable to continue. However, they said that many businesses will find it hard to cope with the increased costs.
UK Steel welcomed the higher level of support for steel producers. However, they also said that the support provided by the UK is less generous than in other countries, such as Germany.
Industry figures have also warned that the new reduced energy support scheme risks increasing inflation. If businesses are not supported adequately, this will have an impact on the wider economy.
Even though the announcement of the details for the schemes will provide small businesses with more clarity, it is clear that they will have a bumpy ride ahead.