UK Government outlines plans to help cut energy bills for businesses

The UK government has announced plans to introduce a cap on wholesale energy bills for businesses.

Under the UK Government Energy Bill Relief Scheme, the amount businesses, the voluntary sector like charities and the public sector such as schools and hospitals pay for gas and electricity will be capped for the next six months.

This support will be equivalent to the Energy Price Guarantee put in place for households.

For all non-domestic energy users in Great Britain, the UK government-supported price has been set at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas

For comparison, wholesale costs in England, Scotland and Wales for this winter are currently expected to be around £600 per MWh for electricity and £180 per MWh for gas.

Suppliers will apply reductions to the bills of all eligible non-domestic customers.

The UK government will compensate suppliers for the reduction in wholesale gas and electricity unit prices that they are passing onto non-domestic customers.

The support will be automatically applied to all eligible bills.

The savings for energy used in October will be seen in your October bills, which would usually be received in November.

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.”

Chancellor Kwasi Kwarteng said: “We have stepped in to stop businesses collapsing, protect jobs, and limit inflation.”

“And with our plans to boost home-grown energy supply, we will bring security to the sector, growth to the economy and secure a better deal for consumers.”

The level of price reduction for each business will vary depending on their contract type and circumstances:

• Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.
• Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. This is why the Government is working with suppliers to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support.
• For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.

If you are not connected to either the gas or electricity grid, equivalent support will also be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas. Further detail on this will be announced shortly.

Kate Nicholls, CEO of UKHospitality said:

“This intervention is unprecedented and it is extremely welcome that Government has listened to hospitality businesses facing an uncertain winter. ”

“We particularly welcome its inclusiveness – from the smallest companies to the largest – all of which combine to provide a huge number of jobs, which are now much more secure.”

“The Government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the Government, to ensure that there is no cliff edge when these measures fall away.”

A few worked examples were also given, copied below:

• A pub uses 4 MWh of electricity and 16 MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme. The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.
• A school uses 10 MWh of electricity and 22 MWh of gas a month. They signed a fixed contract in July 2022, giving them a current monthly energy bill of about £10,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme. The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £240/MWh for electricity and £70/MWh for gas, meaning they receive a discount of £4,000 per month, reducing their original bill by 40%.

Martin McTague, National Chair of the Federation of Small Businesses, said: “Small businesses called for decisive action – now the government is delivering.”

“With small firms the least able to avoid closure and 16 million employees relying on them, Ministers have listened to our community and got this big call right.”

“Now it’s up to energy retailers to live up to the high bar set today and make sure this help reaches those on the ground.”

Commenting on the news, Welsh Conservative Shadow Economy Minister, Paul Davies MS said:

 “The war in Ukraine, on top of the unlocking of economies from Covid, has been driving up energy prices, causing immense concern for businesses across Wales.”

“Their worries should at least in part be alleviated by the significant measures announced today.”

 “It is welcome to see the Conservative Government stepping in to address this pressing issue.”

“For weeks, the Labour Government in Wales have passed the buck on energy costs, despite possessing some of the levers of power themselves.”

 “The Welsh Conservatives welcome the wider approach of cutting taxes to drive economic growth and look forward to further announcements on Friday.”