Jacob Rees-Mogg to slash business energy bills in half through new ‘relief scheme’

New Business Secretary Jacob Rees-Mogg unveiled Government Energy Bill Relief Scheme this morning (21 September) via a press release, instead of the traditional method of explaining the new scheme to MPs in the House of Commons.

The Department for Business, Energy and Industrial Strategy (BEIS) claims that the Government has introduced a new support price of £211 per MWh for electricity, compared to a projected price of £600 per MWh and  £75 per MWh for gas compared to a projected winter price of £180 per MWh.

The new pricing, which will be applied in pence per kilowatt hour (p/kWh), is available to all non-domestic energy contracts, including businesses, voluntary sector organisations, such as charities and public sector organisations such as schools, hospitals and care homes.

The change will come into force from 1 October and run for an initial six months.

Business Secretary Jacob Rees-Mogg said: “We have seen an unprecedented rise in energy prices following Putin’s illegal war in Ukraine, which has affected consumers up and down the country and businesses of all sizes. The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support.

“This, alongside the measures we are taking to boost the amount of domestic energy we produce to improve both energy security and supply, will increase growth, protect jobs and support families with their cost of living this winter.”

The Government is basing the new price mechanisms on the implied wholesale element of the Energy Price Guarantee for domestic customers, but final costs will vary on contract type and also other costs such as network charges and operating costs.

For organisations with fixed contracts, BEIS has confirmed that the discount will “reflect the difference between the government supported price and the relevant wholesale price for the day the contract was agreed”. For other variable contracts, the discoiunt will reflect “the difference between the government supported price and relevant wholesale price”.

As with the domestic energy relief package announced earlier this month, the scheme will be automatically applied to eligible organisations.

The Government will also publish a review of the scheme in three months’ time, which will inform any potential extensions beyond the current end date of March 2023.

Businesses and households alike have faced spiraling costs due to a spike in the cost of wholesale gas, namely due to Russia’s invasion of Ukraine.

However, while households have been covered by an energy price cap, businesses were facing potentially unlimited increases in the cost of energy.

When Liz Truss outlined her immediate plans to deal with the energy crisis, the new Prime Minister confirmed that the Government will provide “equivalent guarantees” for energy prices for businesses for at least the next six months. This means businesses will see their energy costs capped at the same price per unit that households will pay. This will then be reviewed within the next three months and Truss added that the Government would work beyond the six-month timeframe to support vulnerable sectors like hospitality.

Those measures include a new price freeze on household energy bills, effectively eliminating the £3,549 price cap due to come in October. Instead, the price cap has been frozen at £2,500 for the next two years from 1 October, which the Government believes will deliver a “pro-growth, pro-business and pro-investment approach for the country’s energy security”.

Today, the Business Secretary also confirmed equivalent support for households in Northern Ireland.

Prime Minister Liz Truss said: “I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods.

“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind. At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”

Many green economy representatives asked why it had not been paired with other measures, like a new national home insulation scheme. Concerns were also raised about Truss’s moves to reverse the UK’s ban on fracking in communities where the practice has public support; to go ahead with new oil and gas licencing; and to reportedly instruct Jacob Rees-Mogg to pause the Energy Security Bill. All of these seem to feed into Truss’s view that the UK’s net-zero transition should be “pro-business and pro-growth”, using a different approach than those previously recommended by the Climate Change Committee.

Earlier in the week, more than 100 businesses and financial institutions urged new Prime Minister Liz Truss to couple plans for dealing with the cost-of-living crisis with plans for climate action.

The letter argues the case for delivering an economic recovery for the UK grounded in low-carbon technologies and nature conservation and restoration.

A report from the Corporate Leaders Group this summer concluded that addressing the UK’s rising energy prices in a “climate-friendly” way would not only cut bills for households and businesses now, but reduce the likelihood of future price spikes and be beneficial to the economy in the short and long term.

Green economy reaction 

Responding to Rees-Mogg’s statement, the UK Green Building Council’s head of policy and public affairs, Louise Hutchins, said: “The Government is right to announce major relief on the cost of energy for businesses, charities and the public sector.

“The package is for just six months with the promise of more support to come for some sectors, but businesses need longer-term security against high gas and electricity bills. It’s now urgent that the government comes forward with a strategy to cut the vast costly energy waste from the sector’s poorly insulated buildings and drive a shift from gas and oil heating to more efficient, low-carbon options.

“Measures such as VAT and business rates cuts for businesses investing in decarbonising their buildings and requiring companies to measure and publish their energy performance will all be needed if we are to get off the hook of high and volatile gas bills year on year.”

The Energy and Climate Intelligence Unit’s senior analyst Jess Ralston said:  “With taxpayer support only set to last for six months under the current plan, the question is what happens after that?

“Experts have said time and time again that the government’s approach to the gas crisis is missing a key component – conserving energy. While billions will be spent on bailing out bills, much less is targeted at the root of the problem, that we waste huge amounts of our energy.”

Labour’s London Assembly Environment Spokesperson, Leonie Cooper AM, said: “Support on bills for beleaguered businesses is welcome, but this energy crisis has been building for months. It comes too late for those on the brink of bankruptcy or those already forced to close as the cost of living hits consumer spending.

“Funding [this scheme] through borrowing billions of pounds and not a windfall tax on profit-making oil and gas producers leaves working people paying the bill for years to come.

“Many unanswered questions remain, such as what happens when the six-month cap runs out but energy prices remain high. The Government must avoid businesses falling off a financial cliff edge when it comes to an end.”

Grundfos’ country director for the UK, Glynn Williams, said: “The Government’s intervention is a welcome but temporary solution to the energy crisis. Though fiscal relief has a role to play, more substantive solutions are needed while we wait for supply-side schemes to come into effect.

“Energy efficiency remains notably absent from the government agenda, and yet simple measures, such as balancing heating systems, could save 8% on annual household gas bills alone. Realised nationwide, this corresponds to 1.4 million UK households receiving free gas heating. Homes, hospitals, schools and offices all deserve solutions that can minimise energy use without compromising warmth. Sticking plasters are insufficient for a crisis of this scale and energy efficiency must urgently be prioritised as a solution to reduce demand and thereby lower fuel bills.”

The Association for Renewable Energy and Clean Technology’s (REA) chief executive Dr Nina Skorupska said: “Government intervention is welcome and about time – businesses are already hurting.

“This scheme will provide some relief, reducing the cost of electricity, on average, by about 40 -50% and the cost of gas costs by about 25% from forecast prices. However, a lot more must urgently be done in the medium term to avoid a similar situation once these initial six months of support come to an end. We cannot be in the same position next winter.

“The renewables industry is already in discussion with Government to determine how the much cheaper costs of low carbon generation can be better felt within the wholesale market and benefit both domestic and non-domestic energy users. We have all the solutions available to us to encourage the mass roll-out of low carbon heat technologies, including heat pumps, biomass boilers, hydrogen, thermal storage and other renewable technologies. It is vital that Government recognise the need to ensure the right technology for the right commercial and industrial situation.”

NatWest Group’s heaad of business banking Andrew Harrison said: “We are at a critical moment in our response to the climate crisis. The current economic environment is such that many SMEs who are ready and willing to invest in green initiatives still feel unable to do so as rising energy costs shift their focus to the short-term.

“The long-term impact is that our nation’s small businesses are left behind the curve on green innovation, less efficient than competitors, more exposed to future supply-side shocks and unable to make their crucial contribution to UK climate targets. We must support long-term investment into new, clean technology that will lead to lower energy prices for longer and a much more resilient UK energy infrastructure.”