It came as little surprise when the government this week announced a reduction in the level of financial support being offered to businesses and other non-domestic users facing high energy costs. However, it’s still unwelcome for the majority of businesses.
The new Energy Bill Discount Scheme will be introduced from April 2023, replacing the current price discounts in place for this winter. The new scheme operates as a fixed discount above a threshold rather than the guaranteed unit price offered by the current scheme, leaving businesses more exposed to high energy costs.
Beyond the core scheme, government has recognised the vulnerability of a wide range of businesses to high energy prices. Sectors including manufacturing and processing of food, alcohol, textiles, wood, fertilisers, ceramics and batteries will be eligible for more generous support over the coming year. Smaller businesses that do not qualify for that higher level of support , such as pubs and restaurants, are likely to come under increased pressure when the current support scheme ends in April. This is off the back of several years of lower demand and uncertainty caused by the pandemic.
However, even for those sectors qualifying for more generous support, it is clear ministers expect all businesses to prepare for a future without direct support. The new scheme will last for 12 months, but beyond this point, there is a strong signal that universal support for business energy costs will end. Given the fiscal backdrop, it is not surprising government wants to cap the cost of supporting business energy needs.
And given the tight fiscal position, any calls for more support from government will face an uphill struggle, except in the most extreme circumstances. Industry will need to think carefully how to demonstrate the cumulative impacts of energy costs, inflation and a tight labour market on its margins, at a time when inflation is making customers rethink their hospitality spending and strikes can make visits to town and city centres impossible. Government does have levers it can pull beyond energy support.
Coming back to energy, the regulator and government feel they have space to reduce the support due to the reduction in wholesale energy prices. If that continues, they need to make sure savings are passed on by energy companies to customers. This will be a test of the regulation of the business energy market – brokers as well as suppliers – and Ofgem has been explicitly charged with establishing whether further intervention is needed.
In his autumn statement, the chancellor committed to a new target to reduce energy demand by 15% by 2030, and the private sector is expected to make a lot of the running. With tight margins across the food and drink industry, it is important companies and representative organisations start engaging government on how to help make this affordable. That is likely to be through incentives to invest in energy efficiency measures.
Given longer-term pressures associated with the transition to net zero as well as current prices, this is unlikely to be wasted investment, but its mechanics need to be put in place as early as possible.
No comments yet