Businesses call for more support as Government reduces business energy relief

The Government has announced that it will reduce support for businesses with energy bills after warning that the current level of help was too expensive.

Under the new scheme, firms will get a discount on wholesale prices rather than costs being capped as under the current one. Heavy energy-using sectors, like glass, ceramics and steelmakers, will get a larger discount than others. But firms will only benefit from the scheme when energy bills are high.

The Chancellor of the Exchequer, Jeremy Hunt, said “My top priority is tackling the rising cost of living – something that both families and businesses are struggling with. That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.”

“Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine. But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead. Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is action is needed to make sure the market is working for businesses.”

From 1st April 2023 to 31st March 2024, eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill, except for those benefitting from lower energy prices.

A substantially higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive – predominately manufacturing industries. A long standing category associated with higher energy usage; these firms are often less able to pass through cost to their customers due to international competition. Businesses in scope will receive a gas and electricity bill discount based on a supported price which will be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.

Responding to the Government’s announcement of the new Energy Bill Discount Scheme, which will replace the Energy Bill Relief Scheme from April, Martin McTague, National Chair of the Federation of Small Businesses (FSB) said “Today’s decision to all but eliminate help through the Energy Bill Relief Scheme (EBRS) is a huge disappointment for small businesses. 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.”

“This is so out of touch. Two pence off a kwh of electricity and half a pence of gas is totally insignificant for small businesses, despite costing billions to the taxpayer. The Government will inevitably have to come back.”

“The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither.”

“While the New Year should be a time of optimism and excitement, 2023 looks like the beginning of the end for tens of thousands of small businesses, which have been relying on the government energy support to survive this winter.”

“In addition to the withdrawal of the vast majority of support to cope with high energy prices, this decision also risks inflation as small businesses bills rise, but their prices will rise at the same time. The EBRS original scheme suppressed inflation by 5% points, but this has been cancelled, today. Slashing support will drive higher inflation, just as we enter a recession.”

“Our latest research shows one in four small firms anticipate to either close, downsize, or radically change their business model when the Government reduces energy support after March. Five days after the Prime Minister’s pledges to restore optimism and hope and grow the economy, small firms will feel let down by the Prime Minister’s decision to call-in the scheme decision planned for December, and cutting back the scheme to such a minimal state.”

“What’s certain from this catastrophic move is there’ll be a cliff edge after March. The small fish and chip around the corner, your local pub, and the family-run independent laundrette – all will see much higher bills. That’s on the Government.

“Gambling that wholesale energy prices will continue to fall this year is transferring the risk of further energy price shocks to small businesses. Think of the children’s nursery in East Sussex which saw its energy prices reduce from £1,200 to £600 per month by the EBRS and the small engineering company in Leicester which is facing a 500% increase in gas bills – they will have no way to mitigate a sharp jump in energy costs.

“Dividing the scheme into two tiers is sensible, but not so that the tier of support for any small businesses lighting or heating premises or using freezers or ovens, has been set so low to mean support diluted to such a feeble level. It would have been better value for money for small firms if the £2bn cost of their element of the scheme to improve energy efficiency, to reduce the need for energy from the grid.

“The Government said that taxpayers cannot prop up failing or unproductive firms, which is insulting to many small business owners struggling this winter.

“Since the onset of Covid, we’ve lost half a million small firms. Allowing more well-run businesses to go under would be a false economy. But with this absurd degraded Energy Bills Discount Scheme, it looks like we’re getting there.”

Alex Hall-Chen, Principal Policy Advisor for Sustainability, Skills and Employment at the Institute of Directors, said “Our research has shown that the Energy Bill Relief Scheme has been a crucial intervention, removing a serious risk to around a quarter of businesses this winter. Businesses will therefore be reassured that some support will continue for a further twelve months.

“We also welcome the Chancellor’s invention with Ofgem to ensure that all businesses, and particularly smaller businesses, are able to benefit from a fair and well-functioning energy market.”

“However, whilst many manufacturers will also receive additional support, it is a shame that the government has not found a way to target other firms most exposed to volatile international energy markets, such as those in the hospitality sector.”

“The design of the new scheme will also provide less certainty for businesses in budgeting. Given that future energy costs will no longer be able to be projected with any degree of confidence, the willingness of directors and auditors to sign off their entities as going concerns will be impaired. In the case of the most vulnerable SMEs, this may affect insolvency assessments and lead some companies to cease trading altogether.”

Conrad Ford, Chief Product and Strategy Officer at Allica Bank, says the government has the unenviable task of balancing the needs of businesses with affordability in a period of heightened public spending “The government’s energy relief package was a swift response that recognised and acted upon the ongoing energy crisis, making a real difference for businesses across the country. However, as we hear the news that this relief is set to be reduced, many businesses are understandably worried about how this is going to affect their plans for 2023 – especially as many will have hoped to finally focus again on growth after the pandemic.”

“Banks also have a responsibility to provide businesses with support to face the challenging economic period ahead. Some 83% of the businesses we surveyed are calling out for the banks to give more of a lifeline – either with funding or more communication and expertise. Specialist business banks that focus on relationship banking are ideally placed to deliver this.”

Jonathan Andrew, CEO of Bibby Financial Services said “The Government’s rationale for dialling down energy bill support is understandable. But the past few years have served blow after blow for the UK’s small and medium sized enterprises as they bounce from one crisis to another. Low on cash, and short of resilience, too many will find themselves on the precipice of collapse come April unless other specific support is put in place.”

“At this stage in the year, SMEs need stability and consistency to enable them to plan ahead and overcome challenges associated with unpredictable economic conditions. Sky high costs and interest rates are squeezing cash-strapped businesses at both ends. Ultimately, access to finance to enable cashflow and investment will be critical to businesses’ ability to ride out this storm. But, anecdotally, we know many are struggling to pay back loans, while others face finance blackspots with lenders retrenching from markets, and overall, there appears to be a lack of awareness of what financial support is on offer.”

“Urgent action is required from the Government to provide clear direction to ensure SMEs can access finance, while ensuring the right level of support to keep them growing. Those SMEs that are equipped to build resilience and invest in their futures will play a vital role in leading the UK out of recession.”