What every director needs to know right now

The Government has announced a raft of measures to support individuals and businesses with their increasing energy bills over the next six months. 

Speaking in parliament, new Prime Minister Liz Truss was outlining the details of the various schemes and we’ll be adding more details later as they emerge. 

Support for businesses

Every UK business and public sector organisation will be offered a new six month scheme offering “equivalent support” to the £2,500 freeze on energy bills that individual consumers have been promised under a new “energy price guarantee”. 

Details continue to emerge but energy experts expect the intervention to be based around capping the wholesale price of gas.  This means that energy companies that buy this to supply to companies will pay less than originally expected meaning that these savings can be passed onto business consumers in the form of lower bills. 

A review will take place in three months time to consider whether the scheme should become more targeted to specific industries and users.

There is also an expectation that the intervention would also reduce the peak inflation level next year which would also help businesses by reducing the cost of servicing debt and repayments. 

As part of the new approach, an energy supply taskforce was announced which will be led by Madelaine McTernan, who previously led the UK’s Covid vaccine taskforce

They have already begun negotiations with domestic and international energy suppliers to agree contracts that reduce the price they charge for energy. 

The taskforce will also negotiate with electricity generators including wind, solar and nuclear power producers to reduce the prices they charge too.  These talks follow proposals for a scheme where producers on renewable energy obligation contracts are encouraged to switch to contracts for a difference. 

Business energy bills are already complex and we’ve recently written about what the various individual components are that add up to the total amount charged here. 

Support for suppliers

Help for suppliers will come through a working partnership between the Treasury and the Bank of England to “address the extraordinary liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets.”

The energy markets financing scheme has been designed as a “last resort” and is designed to “enable stability to both energy and financial markets, and reduce costs for businesses and consumers.”

It will begin operating by the end of October or sooner and is required as energy companies are having difficulties securing their balance sheets amid fears that they will have to buy their energy in advance in wholesale markets which are experiencing volatile price fluctuations.

Further reforms to the structure and regulation of the energy markets are expected to be undertaken after a review of regulations. 

Support for consumers

The headline news from the statement is that energy bills for consumers will be frozen at an average of £2,500 a year for the next two years from October 1st under the “energy price guarantee” which will replace the existing Ofgem energy price cap which was due to rise to £3,549. 

The freeze includes the temporary removal of green levies on household bills, worth approx. £150.

Chris Horner, Insolvency Director with BusinessRescueExpert, welcomed the news of help for businesses. 

He said: “An energy price guarantee will bring a degree of certainty to companies when it comes to potentially huge increases in their gas and electricity bills. 

“The scheme is due to run until the end of March 2023 with a review half way through although as we saw with the Covid-19 support measures, these always have the potential to be extended if the need turns out to be greater than first predicted or if the situation worsens.

“The devil will be in the detail on what this will actually mean for companies already struggling to get certainty on the bills and commitments in the rest of 2022 and 2023.

“For instance, a limit on the wholesale price would not see the actual bill frozen – just the amount that could be charged for how much is used. There was also no mention of a cap on the cost of electricity use although this tends to be lower than gas.

“Worried business owners and directors, still uncertain about what the future holds for their companies should use this time wisely and arrange a free initial consultation with one of our expert advisors

“They will be able to go through all the options available to them depending on their unique circumstances – which will probably be more flexible than they might have originally thought. 

“But only if they act quickly and get in touch.”