Businesses will have to secure £5.5 billion in reduced government support to help them with their energy bills from early April, after the current scheme ends.
The new energy bill discount scheme will reduce rather than cap energy costs for businesses and will run for 12 months.
The latest measure replaces the Energy Bill Relief Scheme which fixed wholesale energy costs and was estimated to cost £18 billion over the policy’s six-month life, according to the Office for Budget Responsibility .
Despite taking twice as long as the old scheme, the new one will cost the taxpayer £12.5 billion less.
Under the new scheme, gas and electricity prices will be reduced per unit of power.
Bills will be automatically deducted 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 above will businesses receive rebates.
A higher price threshold for electricity and gas and a rebate amount will be given to energy-intensive businesses such as steelmakers and manufacturers.
Qualifying firms will receive rebates of £40.0/MWh for gas and £89.1/MWh for electricity, as the Treasury said these firms are less able to pass on higher costs to customers due to international competition.
Energy-intensive businesses will receive rebates under the scheme when gas costs £99 per MWh and electricity costs £185 per MWh.
All non-domestic bill payers, including charities and public sector bodies, will also benefit from the scheme.
Reducing taxpayer costs
A cap of £5.5 billion has been placed on the latest scheme in an effort to limit taxpayers’ exposure to spiraling costs.
Speaking to Sky News, Chancellor Jeremy Hunt defended the cut in support.
Asked if he was happy to see job losses and some businesses close as he tries to save money, Hunt said: “No government can continue to subsidize indefinitely higher energy prices. But what we can do, which is important for all these companies, is to reduce inflation.
“That means we have to be responsible with the public finances. But at the same time, today we are announcing £5.5 billion – that’s almost a penny of income tax for every taxpayer in the country – to help businesses in this difficult period”.
Business reaction is mixed
Some business groups have reacted angrily to the announcement. The Federation of Small Businesses (FSB) described the government as “out of touch”.
“Many small businesses will not be able to survive on the pennies provided through the new version of the scheme,” FSB national chairman Martin McTague said.
However, the Confederation of British Industry (CBI) said “the scheme will provide a respite for many businesses at the start of the year and help them plan for the next 12 months with more confidence”.
The CBI’s director of decarbonisation policy, Tom Thackray, said: “It is unrealistic to think that the scheme could remain affordable in its current form, but no doubt some businesses will still find it difficult.”
“Large energy users and those exposed to global trade are among the hardest hit in the current crisis, so additional support for these companies is a particularly welcome step.”
UK Steel, which represents these large users, welcomed the plan but pointed out that it put them at a disadvantage to German competitors.
“Recently announced support is lower than that of competing countries, including Germany,” he said.
“Today’s reforms significantly reduce the help the government will provide… the government is committed to a calm and stable energy market by 2023, in a climate of volatile global markets, with the scheme no longer protecting against prices extremely volatile.”