Business Secretary Jacob Rees-Mogg has announced a wholesale energy cost cap for business customers, which will reduce business energy rates by around half this winter.
The government would grant a reduction on wholesale gas and electricity costs to all non-domestic customers under the Energy Bill Relief Scheme. This encompasses all enterprises in the UK as well as those in the voluntary and public sectors.
The system will fix energy costs for a six-month period beginning October 1, 2022, and will apply to fixed contracts agreed on or after April 1, 2022, as well as variable and flexible tariffs and contracts.
Customers do not need to take any action or request assistance, and the government anticipates that energy prices will be regulated at £211 per MWh for electricity and £75 per MWh for gas, which is less than half the wholesale prices projected this winter.
The initiative is supposed to be evaluated in three months, and there is an option to extend help to "vulnerable firms," though no description of this has been provided.
"I appreciate the great pressure businesses, charities, and public sector organizations are under with their energy bills, which is why we are taking immediate steps to support them over the winter and protect jobs and livelihoods," Prime Minister Liz Truss said.
"As we do for consumers, our new strategy will keep their energy bills low beginning in October, giving them certainty and peace of mind."
"At the same time, we are increasing Britain's domestic energy supply to address the core cause of the problems we are experiencing and ensuring greater energy security for all."
What do businesses think of the Energy Bill Relief Scheme?
Louise Hebborn, Partner and Head of Commercial Litigation at Stephensons, questions if the assistance is sufficient. "The Energy Bill Relief Scheme provides some relief for businesses who have seen their bills rocket to unprecedented heights," she says.
"While beneficial, this combination of assistance may not be sufficient to keep every business afloat. Many businesses are already facing a catastrophic financial loss, and a sizable proportion of them will be concerned about the viability of their operations after this respite expires in six months.
"While these measures are likely to be reviewed on a regular basis, it is critical that the government works closely with businesses of all sizes and does not hesitate to take appropriate action to help them balance the books and keep their business viable."
Douglas Grant, Group CEO of Manx Financial Group PLC, agrees that more should be done. "The Government's emergency action on energy costs for SMEs is very excellent news for UK industry," he says, "and demonstrates that it takes urgent warnings from a range of organizations seriously." However, we believe that more should be done.
"According to our latest research, 22% of UK SMEs who required external finance and/or capital in the last couple of years were unable to obtain it." Indeed, more than a quarter of businesses have had to cease or pause one aspect of their operations due to a lack of funds.
SMEs continue to struggle with access to credit, and this lack of availability is costing them and the UK economy growth when it is most needed. The amount of growth that is being sacrificed is enormous, necessitating the development of innovative solutions to fill the fiscal deficit.
"The extension of the Recovery Loan Scheme ("RLS Phase 3") proved beneficial to UK businesses." RLS, for which Conister received accreditation in August of last year, has given the necessary stimulus for numerous sectors to develop. As the demand for working capital climbs to new highs, more businesses are in desperate need of liquidity provisions to offset record inflation, rising interest rates, supply chain difficulties, and pay increases. With financing costs expected to rise, many SMEs are experiencing their own cost of living issues.
"We have long advocated for a sector-focused permanent government-backed loan plan that brings together traditional and alternative lenders to ensure the viability of our SMEs."
Menzies LLP Finance Director Richard Singleton feels that the measures should be tailored to particular businesses. "Slashing energy prices to about half of what was projected is a powerful expression of support from the government," he said. Despite this, businesses must nevertheless plan ahead of time for the coming winter and minimize energy consumption wherever feasible to make the most of this help.
"A one-size-fits-all solution will not suffice." Businesses that consume more energy, such as pubs, restaurants, and shops, as well as energy-intensive industries such as manufacturing, property, and construction, which often run around the clock, will require specialized assistance. More negotiations about assistance are planned at the end of the six-month period, with plans for a three-month review process before extra aid is guaranteed.
"While this news will bring some relief to businesses over the coming winter, the government must continue to demonstrate its commitment to all areas of business and its understanding of energy usage across all sectors as we seek to find a way out of this issue."
"While the government intends to accelerate its renewable and domestic energy initiatives, this will not be in time for firms that only have a few months of working cash to subsist on."
More support is needed for SMEs
Tina McKenzie, Policy and Advocacy Chair of the Federation of Small Businesses (FSB), agrees that greater help is needed. "This is a significant gesture and will likely be of significant help to small enterprises that have been crying out for months for measures to alleviate the suffering caused by spiraling energy prices," she added. The statement provides predictability for the next six months, but many small businesses still face a difficult year.
"Many have been waiting for news on the energy bills assistance package in order to plan confidently for the winter and beyond, so it's encouraging to have clarification from the government on the shape that its assistance would take." The next step will be for small firms to learn what the changes mean for their present contracts as well as any offers they have been considering but have yet to settle on.
"While subsidizing unit costs of energy and gas for six months is welcome, there are many who miss out before the six-month period, and assistance should not result in a cliff-edge after that." We are advocating for the establishment of a hardship fund for individuals who do not qualify for present assistance or for whom it will be insufficient.
"Some businesses that signed fixed contracts after prices climbed but before April will face hardship because they are no longer eligible for the plan." The FSB urges energy suppliers to allow such customers to migrate free of charge to new fixed contracts covered by the Energy Supported Price if it means the difference between survival and failure for the small business.
"There will also be a hardship for people who have paid increased rates since April, as this assistance only applies to October use, i.e. November bills." The government then estimates that assistance will cover up to half of the increase from that portion.
"The promise of similar assistance for those who use heating oil will be enthusiastically embraced, as this accounts for a huge number of small firms."
"We ask the Government and energy providers to create a discretionary funding bucket, comparable to the £150 million provided for homes that do not pay council tax, for all enterprises that fall outside the boundaries of today's support, or where the help is insufficient for the firm to be successful." The remaining funds from the Covid Additional Relief Fund, which will be returned to the Treasury next week, could be utilized for this purpose.
"When it comes to energy price increases, small businesses are the epitome of vulnerable." Because small businesses lack the ability to hedge or negotiate energy prices, we will encourage the government to continue to assist small businesses in all sectors after the six-month period has expired.
"In our opinion, size, rather than region or industry, is a good determinant of a company's ability to confront increasing bills." When all small firms with premises have been severely impacted, there is no such thing as a "vulnerable sector."
"The Government has appropriately responded to the FSB's proposal to match energy assistance for small businesses with that provided to households." We have been spotlighting the situation of small businesses and suggesting a variety of policy levers that the new administration can pull, and we are glad that today's statement has taken note of our contribution.
"With the government stepping in to assist businesses with their energy expenses, energy companies must play their part in supporting their small company customers."
"Energy providers must fully pass on the benefit of the freeze, and must offer revised bills and quotations to every small business customer who will be asking what the changes mean for them today."
"We are concerned that there is no mention of a restriction on standing charge increases, which are the second major component of energy bills." While standing charges for families will be capped, the same cannot be true for businesses, and we urge energy suppliers to help their small company customers by agreeing to decrease standing charges as much as feasible.
"We'd like to see energy companies commit not to disconnect businesses that are now unable to pay their energy bills this winter, and not to demand excessive upfront payments." A 'time to pay' approach to assist small businesses in arrears would also be helpful.
At the moment, small businesses may be removed from electricity supplies if they are unable to pay payments after 30 days.