Government to cap firms’ energy bills amid calls for longer-term support
Jacob Rees-Mogg is expected to announce a cap on energy prices for businesses that would cut the rates they pay by up to half this winter.
The business secretary will outline support on Wednesday for companies, charities and public sector organisations for six months from 1 October, after Liz Truss said they would receive equivalent help to households whose costs are being capped.
Rees-Mogg is expected to cut the rate for electricity and gas for non-domestic users by about 50% and 25% respectively, compared with current contracts for winter, in a plan first reported by Bloomberg and confirmed by government sources.
However, the cap may not be enough to prevent permanent scarring to Britain’s high streets, as pubs, shops and schools looking to sign new electricity contracts have been quoted prices up to 10 times their current rates.
The Federation of Small Businesses (FSB) has said that without a significant intervention, the UK faces a “lost generation” of traders, adding that a cap would not affect high standing charges imposed by suppliers. Larger businesses are also raising concerns.
On Tuesday, the pub group Fuller’s said its annual electricity bill was likely to soar from £8m to £18m, warning that the increases faced by the hospitality sector are “unsustainable”.
Some Labour and even Conservative MPs are understood to be frustrated that Rees-Mogg will not announce the plans on Wednesday in the House of Commons.
It means there will be no opportunity for him to be questioned on the support in the chamber because parliamentary business is being taken up by oaths to King Charles III.
Details of the scheme emerged as Truss confirmed that pubs will get help with their energy bills for longer than six months, but many other vulnerable businesses and public services will have to wait until winter to find out if they are eligible for long-term support.
Ahead of the announcement from the government about energy help for businesses, Truss said pubs are one of the types of businesses that would be vulnerable enough to get support in the long term.
She said vulnerable businesses will be told in another three months if they are eligible for longer-term support beyond the next six months, but she singled out pubs as a group of businesses likely to qualify. Others – including schools and charities as well as small shops and traders – will have to wait.
In an interview from the UN general assembly in New York, the prime minister said: “What more I can say is that for businesses that are vulnerable, who don’t have the wherewithal to … invest in their own energy supply, we will be providing support in the longer term.
“That does include businesses like pubs. The business secretary is conducting a review of exactly which businesses will be included – that review will be completed within three months. I can reassure people who own pubs that they are exactly the type of businesses that will get that longer-term support.”
Truss previously faced criticism for failing to set out details of how businesses would be helped, beyond saying they would receive equivalent help to consumers.
Household energy bills will be capped at £2,500 a year on average from October.
Energy suppliers have also raised concerns that the government may leave them to decide how to pass on state support for struggling businesses.
It is understood executives have told officials that they will face a backlash if they are asked to decide how best to deliver financial support for businesses to tackle rising energy bills.
As Truss announced the freeze, the government said it would “launch a new scheme for all non-domestic customers who would otherwise have been at the mercy of high prices driven by Russia’s illegal war in Ukraine”.
It noted that “the majority of UK non-domestic customers are on fixed-price energy deals”.
It had been expected the scheme would offer businesses a fixed price for a unit of energy and that suppliers would receive a subsidy to cover the difference between that and the wholesale price.
However, there are concerns that suppliers may be asked to ensure businesses are actually in need of the support. Some firms will have bought their power in advance at relatively low prices, insulating them from soaring bills.
One supplier said: “There’s huge complexity here when you look across the board, from heavy industrial users to small businesses. There’s the option to discount the energy unit rate, but then the question remains over whether all companies will receive that support, if some have bought their power years in advance.
“We do not want to be the arbiters of it. We can never win in that scenario. It has to be universal, otherwise there’s always the chance of businesses falling through the cracks.”
Another large energy supplier said: “The government wants to give money and then we work out how to spend it. We are not going to make these decisions.
“We’re also concerned about companies gaming the system – selling their valuable hedging contracts on to other firms and then also taking the support.”
Under the scheme expected to be announced, suppliers would be able to impose their own charges on top and would be compensated for the wholesale price cap by the government.
This would be about 21p per kilowatt-hour for electricity and 7.5p per kWh for gas. There would be a different cap for those paying variable rates. Government sources said this was the most likely model and scale of energy bill support for businesses, without saying how much the total package would cost the Treasury.
Craig Beaumont, the chief of external affairs at the FSB, said: “If the government is going for a fixed wholesale price, tomorrow we need to understand how that will be applied to small businesses’ energy bills in practice. A small business will need to be told by their supplier, fast, what their new bill will be.
“However, there may be no regulation of the other major element of small business energy bills – the standing charge.
“While consumers will have their standing charge capped, small firms won’t, and that means energy providers could continue to hike standing charges, and so still mean small businesses seeing their energy bills spiral.”