British business hails plan to cap energy bills at half of market rate

The plan, which could cost the UK government up to £40bn, will be closely scrutinised ahead of the budget here next week.

British prime minister Liz Truss said there is a danger that cafes, pubs, and shops could go out of business without the new scheme.

The British government unveiled a multibillion-pound bailout to help companies with their energy bills this winter amid soaring prices that threaten to put many out of business.

Under the estimated £40bn (€46bn) plan, the UK government will cap the wholesale energy prices that feed into gas and power contracts for businesses for six months. Thereafter, a review will determine whether ongoing support is needed for specific sectors.

The cap for businesses is set at 21.1 pence per kilowatt-hour for electricity, and 7.5 pence for gas, it said. That would impose a discount of roughly 50% on the current wholesale prices this winter, but the markets remain volatile, and the exact discount for each business depends on when it signed a contract. 

The British measures will be closely scrutinised ahead of the budget here next week. 

Documents seen by Bloomberg two weeks ago estimated the package may cost from £21bn to £42bn over six months. It is separate from a £130bn plan to help households with their energy bills.

“There’s a very real danger, before we put in place our business scheme, that cafes, pubs, and shops could go out of business, and we simply couldn’t allow that to happen,” prime minister Liz Truss told reporters this week during a trip to New York. 

“That’s why it is right for the government to take the steps that we’ve taken.” 

In the UK, business energy costs are not limited by regulator Ofgem’s household price cap. Under the new plans, businesses that have signed fixed contracts since April 1 will have their rates retroactively discounted to equalise the per-unit price of energy. 

All businesses will be eligible for the subsidy, regardless of size. That may cover some of the biggest companies — such as gas producers and banks — alongside pubs, cafes, and small retailers.

“The package will ease worries about otherwise viable businesses shutting up shop, and smaller companies especially will benefit from the discounted rate,” said Confederation of British Industry chief policy director Matthew Fell. 

The proposal also covers public-sector organisations, hospitals, charities, and consumers in Northern Ireland, which are not covered by the wider consumer package already announced.

“We are relieved that the government has listened,” said Kate Nicholls, CEO of trade group UK Hospitality. 

There must also be a comprehensive package to ensure that there is no cliff edge when these measures fall away.” 

Even with the British government’s help, businesses still will be paying much higher costs than usual to keep running. Before energy prices started rising last year, wholesale rates were fairly steady for years at about 5 pence per kilowatt-hour for electricity and 4 pence for gas.

Supplier and broker charges can still be added to the new business rates, allowing for competition in the market and more variation in total bills than in the household measure.

That cap on variable tariffs for the next two years is 34 pence per kilowatt-hour for electricity and 10.3 pence for gas. However, those also take into account such costs as sales taxes, as well as environmental and network levies. 

Bloomberg