Businesses, charities, and the public sector will receive limited energy discounts from 1 April in a year-long £5.5bn package announced by the Chancellor
The new energy scheme will replace the current scheme ending in March and will run for a year. All eligible UK businesses and other non-domestic energy users will receive a discount on energy bills until 31 March 2024.
The latest data shows wholesale gas prices have fallen to levels seen just before Putin’s invasion of Ukraine and have almost halved since the current scheme was announced.
The government said the new scheme ‘strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets, with a cap set at £5.5bn’.
From 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 scheme will cover non-domestic customers in the UK.
The discount will be available to those:
- on existing fixed price contracts that were agreed on or after 1 December 2021;
- signing new fixed price contracts;
- on deemed / out of contract or standard variable tariffs;
- on flexible purchase or similar contracts;
- on contracts paying energy costs above a price threshold; and
- on variable Day Ahead Index (DAI) tariffs (Northern Ireland scheme only).
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. The Treasury is working on the finer details of the scheme.
Higher energy users – energy and trade intensive industries (ETII) – 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 only apply to 70% of energy volumes and be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.
Businesses may need to register for the higher level of ETII support and details on how to apply will be released by the end of March 2023.
Mining and manufacturing sectors fall into the ETII scheme, as well as library and archive activities, museums, operation of historical sites and buildings and similar visitor attractions, botanical gardens, zoos and nature reserves.
Chancellor 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.’
Reacting to the announcement, Federation of Small Businesses Scotland policy chair said: ‘Energy costs are still the single biggest challenge for many of our members, with six in 10 reporting utilities as the main driver of cost increases.
‘By switching the support from a cap to a discount on wholesale costs, businesses are once again at the mercy of the global events that drive those prices.
‘This creates more uncertainty. With a wholesale unit price cap, you can at least plan ahead. But with a mere discount on wholesale prices, many businesses will fear the next spike in energy costs and how high they might go. This will make it harder for firms to bid for fixed-price contracts, or to decide when, or if, they’ll open in the first half of the year.’
CBI director for decarbonisation policy Tom Thackray said: ‘Heavy energy users and those exposed to global trade are among some of the most impacted in the current crisis, so the additional support for these firms is a particularly welcome step.’
Examples – case studies
The level of support for each organisation will vary depending on type and date of contract. The following are illustrative examples only.
A typical pub uses 16 MWh of gas and 4 MWh of electricity per month. Under the new scheme, it could receive up to £2,280 of taxpayer funded support in the 2023/24 financial year.
A typical small retail store uses 2 MWh of gas and 1 MWh of electricity per month. Under the new scheme, it could receive up to £403 of support in the 2023/24 financial year.
A typical medium sized manufacturer uses 1,600 MWh of gas and 200 MWh of electricity per month. Under the new ETII scheme, it could receive up to £687,120 of funded support in the 2023/24 financial year.
The Chancellor has also written to Ofgem asking for an update in time for the March Budget on the progress of their review into the non-domestic market. He has asked for their assessment of whether further action 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 first tranche of energy support for business provided a package of support for non-domestic users through the winter was worth £18bn. The Treasury said this was equivalent to the cost of an increase of around three pence on income tax.