British businesses brace for Government to slash energy bills support scheme

The Energy Bill Relief scheme was introduced last October by then-Business Secretary Jacob Rees-Mogg. Rees-Mogg, Liz Truss’s man of choice for the role, confirmed that it would only be in place in its original guise for six months. Some businesses saw their bills halved due to the scheme.

Under Rishi Sunak, Chancellor Jeremy Hunt proposed changes to the scheme, stating that the current level of support provided was not sustainable as costs for taxpayers were too high. He confirmed cuts to the scheme back in January, to come into effect from the start of April.

The new scheme allocates no more than £5.5bn over a 12-month period, while the initial iteration had a maximum budget of £18bn over six months.

With April 1 just a week away, several pieces of research have been published revealing the extent of the scheme’s cutback on businesses.

The Federation of Small Businesses (FSB) has published an estimate that some 370,000 small businesses across the UK will need to either shrink or restructure this year as a result of the Government’s cutbacks – or may simply be forced to close. This is equivalent to some 28% of the small businesses in the UK.

The Federation has heard some rare cases of member businesses seeing their bills increasing more than fivefold year-on-year in 2022, with a great many more seeing bills doubling or tripling.

For example, by the FSB’s calculations, a pub using 48,00 in electricity and 192,000kWh in gas annually, which singed a new variable energy contract, would have received more than £60,000 of Government support on their annual bills under the old Energy Bill Relief Scheme. This level of support under the new scheme will shrink to just over £2,000.

“In a week’s time with the rollback of government support, this group of vulnerable small firms will see their bills revert to high rates,” said the FSB’s policy chair Tina McKenzie. “This cliff-edge will also hit consumers as businesses will have to raise prices to cope with soaring bills, driving up inflation.”

The FSB acknowledges that the Government could not keep up spending on the scheme in line with original levels forever, but is campaigning for other interventions. It wants the Government to work with energy suppliers to ensure that they offer energy contracts which reflect falling wholesale energy prices.

Also touted by the FSB are solutions to save small businesses money by ensuring that they are more energy efficient and can consider self-generating their own energy. It is calling for a ‘Help to Green’ scheme that would provide small businesses with a £5,000 grant for things like insulation, heat pumps and solar panels. This concept has also been supported by the British Chamber of Commerce, Make UK and the Institute of Directors.

Additionally, Chris Skidmore MP’s Net-Zero Review recommended more interventions to help small and medium businesses fit clean technologies. The Government is reportedly set to publish its full response to the review before the end of April.

McKenzie added: “A dozen trade associations representing businesses of all sizes and sectors, have come out to endorse the FSB initiative of ‘Help to Green’. This scheme would be on par with government support for homes and public buildings to retrofit.

“Our message to the Government is: show the small business community that they’re being treated as equal partners in this energy price crisis.”

Bigger businesses

While it is clear that SMEs will be feeling the crunch the most when the Energy Bill Relief scheme evolves next week, other research has revealed that some of the largest firms are also struggling with their energy costs.

The latest edition of nPower Business Solutions’ annual Business Energy Tracker, which includes the results of a survey of 100 large commercial energy users, found that 91 of these firms are either “concerned” or “very concerned” about energy costs.

This is a higher proportion than last year, despite wholesale costs coming down. Seven in ten of the businesses polled said they believe their bills will continue to rise into 2024, partly due to energy suppliers not passing on cost savings and because of government support schemes being scaled back.

A significant minority (44%) of those polled believe that high prices will focus directors’ minds on delivering net-zero strategies – and, in particular, implementing near-term measures to self-generate energy and increase energy efficiency. But most of those polled (75%) said that the business should intervene further to reduce the energy demand of businesses – for example by improving energy efficiency schemes.