A new energy scheme for businesses, charities, and the public sector was announced yesterday by the Government ahead of the current scheme ending in March which will mean all eligible UK businesses and other non-domestic energy users will receive a reduced discount on high energy bills until 31 March 2024.
The new scheme is designed to help businesses locked into contracts signed before recent substantial falls in the wholesale price manage their costs and protect others against the risk of prices rising again.
The Government provided an unprecedented package of support for non-domestic users through this winter, worth £18 billion per the figures certified by the Office for Budget Responsibility at the Autumn Statement — this is equivalent to the cost of an increase of around 3p on people’s income tax. However, this unprecedented level of support was always time-limited and intended to act as a bridge to allow businesses to adapt. The latest data shows wholesale gas prices have now fallen to levels seen just before the Russian invasion of Ukraine and have almost halved since the current scheme was announced.
The replacement scheme is designed to strike a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets, with a cap set at £5.5 billion. The Governmetn says it provides long-term certainty for businesses and reflects how the scale of the challenge has changed since September last year.
Jeremy Hunt, the Chancellor of the Exchequer, 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.”
Lower energy pricesFrom 1 April 2023 to 31 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.
The Government says 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.
The Chancellor has asked OFGEM for an update in time for the Budget on the progress of its review into the non-domestic market. He has asked for their assessment of whether further is action is needed to secure a well-functioning market for non-domestic customers following reports of challenges certain customers are facing, including in relation to the pricing and availability of tariffs, standing charges and renewal terms, and the ability of certain sectors to secure contracts.
The Government says businesses in England will also benefit from support with their business rates bills worth £13.6 billion over the next five years, a UK-wide £2.4 billion fuel duty cut, a six-month extension to the alcohol duty freeze and businesses with profits below £250,000 will be protected from the full corporation rate rise, with those making less than £50,000 – the vast majority of UK companies – not facing any corporation tax increase at all.
Meaningful supportStephen Phipson, CEO of Make UK, the manufacturers’ organisation said: “It is a welcome move that the Government has recognised the need for ongoing support for Britain’s manufacturing sector to protect the thousands of jobs across the UK. We will work through the detailed calculations when they are made available to us by officials to understand how these changes in energy support affects manufacturers.
“We will also need to work with the Government to make sure the ongoing help does actually deliver meaningful support for our sector. It is important to remember that Britain’s manufacturers are already sitting at a serious disadvantage to their major European competitors who are being shielded by more extensive and generous energy support schemes and UK companies risk being undercut across the board if the right support is not there.
“The Government also needs to improve regulation of the industrial energy market to mirror the way it applies to domestic users, to ensure that manufacturers are not further overcharged during this crisis period.”
Stephen Morley, President of the Confederation of British Metalforming, the leading trade association for UK manufacturers of fasteners, forgings and pressings, cold-rolled and sheet-metal products, said: “The CBM would like to draw attention to the Government’s fixation on giving additional support to Energy Intensive Industries (EII) at the expense of other heavy energy users whose costs are relative to EII’s as a percentage of their turnover.
“Heavy energy users do not qualify for both the current and future schemes and other approved exemptions because the current formula used to categorise an EII is based on high electricity costs and doesn’t reflect the fact that many manufacturers use more gas.
“Prices for the latter have gone through the roof and we have been working hard to develop a new energy intensity calculator that covers both forms of energy and provides a ratio against gross value added (profit + payroll costs). We call on the Government to adopt this formula and revise the list of approved EII industries immediately to include heavy energy users.
“This gives a far more realistic view of what is happening in industry, especially for SMEs who have had less opportunity to hedge future energy purchasing and have less room to pass costs on. Many excellent businesses are at a tipping point and this drastic reduction of Government support will only exacerbate this situation and hamper UK manufacturing’s competitiveness in export markets.
He added: “The Government says it is only giving what it can afford and they say we have to be more realistic, but they are ignoring the long-term cost of jobs not being retained or even businesses being lost forever. Rises in unemployment simply stops people spending money in other sectors, so the impact will not be purely felt in industry and will come at a far greater cost to the Government and the country as a whole.”
Director General of UK Steel, Gareth Stace, said: “We welcome the announcement from the Government to launch the Energy Bill Discount Scheme, providing some important certainty and stability for steel producers’ production costs during this extremely difficult economic climate. Steel production is highly energy and trade intensive, and the extended support will provide a critical shield against high energy prices, which will continue this year and beyond.
“However, there will be concerns that the newly announced support falls short of that of competitor countries, including Germany. These reforms significantly narrow the help that Government will provide, with a maximum discount of £89/MWh, which stops delivering once those prices go beyond a ceiling of £274/MWh. The Government is betting on a calm and stable 2023 energy market, in a climate of unstable global markets, with the scheme no longer protecting against extremely volatile prices.
He continued: “The German government guarantees an electricity price of €130/MWh for the whole of 2023, ensuring German industry can continue to operate competitively within Europe and beyond. In contrast, the reformed EBDS provides a discount for electricity prices above £185/MWh, leaving UK steel producers paying an estimated 63% more for power than German steel producers this year. This situation will maintain a long-standing competitive disadvantage for UK producers, resulting in higher production costs and a reduced ability to compete this year.”
“Given the disparity in relief provided in the UK and competitor countries, it is essential that the Government now delivers on its Energy Security Strategy and addresses the outstanding disproportionate costs UK steel producers face in electricity bills, including high renewable levies and network costs. Years of paying more for these elements of electricity costs have placed UK industry at a competitive disadvantage against its European and global competitors.
He concluded: “Steel demand and prices are falling in the UK and across Europe, while key input costs remain persistently high, leading to reduced production, shrinking market share, and increased imports for the UK. While we are grateful and pleased to see that Government has acted to extend the scheme, there remains a vital gap in that delivery. We urge the Government to take the next step and look to match what is provided in Germany for the most energy intensive industries.”