What will the changes mean for your company?
The long awaited details of the extension of government support for businesses energy bills have finally been announced this week.
The main headline is that there will be a support program for businesses available but it will be at about half the current level of support that will end on the last day of March.
The new support scheme will reduce rather than cap energy costs and will run for another year from April 1st 2023 until the end of March 2024.
The government indicated that this is to better protect public finances from volatile energy markets and had only been in place to protect companies from the worst of the price increases that had been expected over Winter.
Business representative groups including the Federation of Small Businesses; UKHospitality; the CBI and the British Chambers of Commerce were briefed in advance of the announcement in a meeting with the chancellor held last week.
A spokesperson for the government said that the Energy Bill Relief Scheme (EBRS) was “one of the most generous in Europe” but added “no government can permanently shield businesses from this energy price shock”.
“Extending the scheme at current levels could cost tens of billions of pounds, with costs potentially doubling or tripling if international energy prices increase further than expected. It is vital that the taxpayer’s exposure to volatile international energy prices is reduced.
“The chancellor heard the concerns of the business community who are facing high energy prices, and explained to them that any future support, while at a lower level, would be designed to help them transition to the new higher-price environment and avoid a cliff edge in support.”
Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB) spoke after the meeting. She said: “Small firms are still very much in the dark on whether they’ll continue to be supported on energy bills when the current scheme expires in March.
“We made it clear in our meeting with the Chancellor that we can’t afford a cliff-edge scenario that would see a raft of business failures.
“With this scheme ending in three months, it’s been impossible for small firms to plan their 2023. We’ve heard countless examples of small businesses on the brink of collapse because of sky-rocketing energy bills and the lack of assurance from the government on energy support.
“Let’s not forget this energy price crisis affects all small businesses, which typically have lower margins and are least able to deal with cost pressures.
“That’s why we want to see an extension of the energy support scheme which takes into account the size of the business, rather than focusing on specific sectors.”
Under the current EBRS scheme the government funds a discount on business (non-domestic) customers’ gas and electricity bills.
This discount covers the cost between wholesale energy prices and a “government supported price” ceiling of £211 per MW for electricity and £75 per MW hour for gas.
Unlike households, businesses were not covered by an energy price cap which would limit the amount suppliers could charge them per unit of energy.
After wholesale energy prices spiked last year, the government’s Energy Bill Relief Scheme fixed these costs temporarily while the government announced that it would review the scheme due to its high cost to taxpayers while considering options to extend the scheme based on targeted support for more vulnerable businesses.
It is thought that the delay in announcing the new details has been down to the complexity of devising new levels of support for different sectors.
Under the new scheme however, gas and electricity prices will be reduced per unit of power.
Bills will automatically be deducted by up to £6.97 per megawatt hour (MWh) for gas bills and up to £19.61 per MWh for electricity bills.
Businesses can only benefit from the scheme when electricity and gas bills are high. Only when prices reach £107 per MWh for gas and £302 per MWh for electricity or higher will companies receive discounts.
A higher electricity and gas price threshold and discount amount will be given to energy intensive businesses, such as steelmakers and manufacturers.
Qualifying businesses will receive discounts of £40.0/MWh for gas and £89.1/MWh for electricity as the Treasury said these businesses are less able to pass on higher costs to customers due to international competition.
High energy using businesses will receive discounts under the scheme when gas costs £99 per MWh and electricity costs £185 per MWh.
It will be available to everyone on a non-domestic contract, this includes: businesses, voluntary sector organisations such as charities and public sector organisations such as schools, hospitals and care homes.
No matter how much support is offered to businesses with their rising energy costs this year, 2023 is set to be one of the most challenging environments for companies they have ever experienced.
Before business owners and directors make the critical decisions that might very well mean the difference between success and survival – they should take this time right now to get some impartial expert advice.
We offer a free initial consultation for them with an experienced advisor who will be able to let them know what additional options they have to protect and strengthen their business right now.
The most important asset this year could be time so make sure you use yours wisely and get in touch.