The scheme will cap the wholesale element of business users' energy bills at a 'Supported Wholesale Price', expected to be £211 per MWh for electricity and £75 per MWh for gas.
The scheme will apply to all non-domestic users on fixed price contracts agreed on or after 01 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will initially run for six months, applying to energy use from 01 October 2022 to 31 March 2023.
Slightly different arrangements will apply for customers on default, deemed or variable tariffs. They will receive a per-unit discount on energy costs, expected to be up to around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. The Government is also working with suppliers to ensure all customers in England, Scotland and Wales have the option of being able to switch to a fixed price contract whilst the scheme is in place.
Equivalent support will also be provided for non-domestic customers that are not connected to the gas or electricity grid, and more detail will be announced on this shortly.
Businesses do not need to take action or apply to the scheme to receive this support, which will be applied automatically via their supplier in the form of a p/kWh discount.
A review of the scheme will take place in three months to inform decision making about any future support that might continue after March 2023.
Industry reaction
"This government understands the sheer scale of the issue" - Positive reaction
Neil Clifton, Managing Director of Cube Precision Engineering: "Without intervention, our energy bills were due to rise from £12,000 in August 2021 to a massive £44,000 this year based on a similar level of consumption. On top of lots of external pressures, inflation and supply chain disruption, this would have been the last thing we needed, especially as we are trying to make the most of lots of exciting new opportunities. In fact, our tooling expertise has been in significant demand from the automotive and aerospace sectors, providing us with the largest order book in our history.
“Our bill will now be between £23k to £25k based on it being capped at £0.21p per kWh – not ideal, but something we can manage. I’m also looking forward to getting full details on the support and to see if levies are to be applied on top of the introduction of the capped rate.”
Gareth Stace, Director General of UK Steel: “The Business Secretary’s announcement today demonstrates that this new government understands the sheer scale of the issue and the need to deliver a significant solution swiftly. The government has clearly listened to sectors such as steel, estimated the enormity of the challenge that energy intensive sectors face, and today has delivered.
“It is essential that Government is now ‘fleet of foot’ if the situation develops further to ensure that British business is competitive within Europe and across the World. If we have parity on energy prices, then we can make steel competitively and provide well-paid and highly skilled jobs in areas of the UK where governments have more recently looked to level up."
Jeremy Nicholson, Corporate Affairs Officer, Alfa Energy Group: "This is a hugely important announcement for business energy users, helping them to stay in business whilst the UK rides out the surge in international energy prices. Importantly it is comprehensive, applying to all business users, and will provide much-needed relief and certainty as we enter the difficult winter period ahead."
"There is still a lot of detail that needs to be established" - Negative reaction
Richard Singleton, Finance Director at Menzies LLP: “Slashing energy prices to almost half of what was predicted is a strong statement of support from the government. Despite this, businesses still need to proactively plan for the winter ahead and reduce energy consumption where possible to make the most of this assistance.
“A one-size fits all approach isn’t going to cut it. Businesses with higher energy consumption, such as pubs, restaurants and shops, as well as energy-intensive sectors such as manufacturing, property and construction, that typically operate around the clock, will need bespoke support. Further discussions around support at the end of the six-month period can be expected, with plans for a three-month review process before additional aid is confirmed.
“This announcement will provide some relief to businesses over the coming winter, but the Government must continue to demonstrate their commitment to all areas of business and their understanding of energy usage across each sector, as we work to find a way out of this crisis.”
Anthony Ainsworth, COO at npower Business Solutions: “The recent insight from our Business Energy Tracker report revealed that 77% of businesses said energy was their biggest risk, so the ‘Supported Wholesale Price’ of £211 per MWh for electricity and £75 per MWh for gas, which BEIS says is less than half the wholesale prices predicted this winter (£600 per MWh for electricity and £180 per MWh for gas), will provide relief for many organisations across the UK.
“However, there is still a lot of detail that needs to be established and there also needs to be a longer term view. Unlike households, these measures are only in place for the next six months, although the government has said it will assess specific support for ‘vulnerable businesses’ after that time period.
“So the question is, what happens after six months? We have campaigned for more support for businesses to enable them to reduce overall energy consumption. There is a real need to accelerate energy efficiency initiatives, whether that is through targeted incentives or extending schemes that provide tax breaks for installing more efficient equipment."
Geraldine Bolton, CEO, and Stephen Morley, president, Confederation of British Metalforming: "At first glance, it's positive, especially as it gives breathing space to our members and it covers all sectors, which is really important. “However, there are some important factors that we would want clarity on before getting too carried away.
“Firstly, it is only for six months with a review in three, so we need clarity on what happens after that, and we certainly don’t want to see other sectors get preferential treatment when the review is carried out. Another point that everyone appears to be missing is that this clearly states it is based on wholesale costs. This only equates to 35% of the cost, the rest is made up of 45% on delivery, 15% on taxes and state charges and 5% on purchasing. This could be open to interpretations by different suppliers and needs direction or, better still, regulation.”
Nimisha Raja, founder of Nim’s Fruit Crisps: “This doesn’t help us at all! “The Government has done nothing to address the daily standing charge. When we entered into a new contract on April 1st, the only option available to my business was one with a £14 per day standing charge, with over and above double the unit rate we were paying previously. This saw prices go from 2.12p per kw to 4.08p per kw.
“This has meant our gas bill has increased from £2500 per month on average to £7500. Our energy bills have been increasing since last November when several suppliers ceased trading, so I have no idea on what they have based the 7.5p per kWh on?
“SMEs need a little bit more from the Government. They talk about a new Growth plan being announced shortly, well the best thing for growth is giving us a fair playing field to do what we do best.”
“I was also hoping for some plans on reforming how energy suppliers are regulated and, rather than borrowing billions to pay companies who are already showing record profits, let’s introduce a one-off Windfall Tax fund that help businesses and consumers in need.
“We can then borrow more, in order to invest in more offshore resources so that we don’t have to be in this situation ever again. I simply don’t buy that a Windfall Tax will slow down growth.
“What will and is already slowing down growth across all sectors – retail, manufacturing and the service industry - is the crippling energy costs forcing many small businesses to close.
“As an owner who understands the fundamentals of buying at one price and selling at another, it is hard to accept the rhetoric from energy companies that higher prices and record-breaking profits are coincidental and not a direct result of the extortionate increases we are seeing.”
