As energy prices disappeared off the chart in the wake of the Ukraine conflict, the government opened its coffers last autumn and wrote what has turned out to be an £18bn cheque to the UK business community, providing a desperately needed lifeline until the end of March 2023.
Speculation has been rife for weeks that the Energy Bill Relief Scheme support would be have to be reduced, with unofficial briefings suggesting it might be halved, though with extra support for certain energy-intensive sectors. What nobody can have anticipated is that it would be almost decimated by a cut of 85%. The £18bn for six months has melted away to just £5.5bn for a whole year up to March 2024.
The bottom line is the UK PLC and Ltd will be more than £30bn worse off on an annualised basis under the new Energy Bills Discount Scheme.
How will the new energy support scheme work?
The government has published an explainer here. The devil of course will be in the detail and there is a lot of detail, much of it impenetrable at this early stage. The key change is subtle, but unpleasant. Before, a business’s energy costs were effectively capped. Now, it will get a discount on usage and that is what will be capped. The result is that the whole of the risk has been transferred from the taxpayer to individual businesses.
Wholesale energy prices
The outcome of the energy support cut will depend on what happens to wholesale energy prices over the next year. The discount will be calculated on these prices and will be applied by the supplier automatically. The clear thinking is that since wholesale prices have fallen significantly in recent months, the stress on businesses will be bearable and the cost to the taxpayer tolerable.
Prices may well stay at the current lower levels, but on average they are still around three times where they were this time last year. Equally, there are a number of reasons why they may rise again: adverse weather for the remainder of this winter or during next winter; military success for Russia in the conflict; and a surge in energy demand in China following the ending of their zero-Covid policy. If energy prices increase once more, the pain will be felt by businesses already struggling in a recession and dealing with the impact of the ongoing cost of living crisis, still rising input costs and severe labour shortages.
You may also be interested in: After the annus horribles of 2022, what will the business outlook be in 2023?
Energy-intensive sectors
There is some extra protection for food and other manufacturing businesses, as well as certain very limited cultural activities. But the hopes of the hospitality sector have been dashed, as have those running schools and care homes. More details of how this additional support will work will be published by the end of March 2023, but businesses will have to apply for these larger discounts.
The likely fall of the energy support cut across the economy
Representatives of a host of business interests are already issuing severe warnings about the impact this support reduction will have on their sectors, just hours after the announcement of the new scheme. Hospitality will experience some of the worst downsides, as will bricks and mortar retailing and a wide range of recreational activities such as fitness centres, indoor sport and entertainment.
2023 was always going to be a challenging year for businesses, but for many it just got a whole lot worse, especially for small businesses without the capital and resources to withstand this increase in the long-term.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.