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A Reduction of Half the Anticipated Level of Energy Costs for Businesses

A Reduction of Half the Anticipated Level of Energy Costs for Businesses
Energy bills for UK businesses will be cut by around half their expected level this winter under a huge government support package. The scheme will fix wholesale gas and electricity prices.

Energy bills for UK businesses will be cut by around half their expected level this winter under a huge government support package. The scheme will fix wholesale gas and electricity prices for firms for six months from 1 October, shielding businesses from crippling costs.

Hospitals, schools, and charities will also get help, the government said.

It comes after ministers announced a multi-billion pound plan to help households with bills for two years.

Analysts suggest the help for firms and households combined could cost up to £150bn.

Industry groups welcomed the package but warned further support may be needed after the winter.

It is understood the scheme will be reviewed after three months with an option to extend support for “vulnerable businesses” – but it is not known what sectors come under the category.

Wholesale prices, which are what suppliers pay for energy in bulk before they distribute it to customers, are expected to be fixed for all non-domestic energy customers at £211 per MWh for electricity and £75 per MWh for gas.

Those rates will be the base cost, to which other add-ons, such as standing charges will be added by suppliers.

Independent analysts Cornwall Insight said the plan marked a “substantial” 45% discount on wholesale energy prices at the end of last week.

The government said the scheme would apply to companies that had agreed to fixed deals at higher prices on or after 1 April, when energy bills started to surge. Those on variable and flexible tariffs will also be eligible.

Companies do not need to contact suppliers as the discount will automatically be applied to their bills, with savings seen from October but received from November.

Josh Farrant, manager at The Ye Olde Fleece Inn in Kendal, Cumbria, said the pub was facing a hike in energy bills from £44,000 to around £124,000 a year before the government’s wholesale cap was announced.

“That some help is coming gives us a bit of hope,” he said. “But we are still massively going to have to look at the way we do things.”

“It doesn’t mean the panic is over. It’s going to run for six months, then we’ll see.”

Guy Adams, who runs the Isle of Barra Beach Hotel in the Hebrides, said he had been quoted a 377% increase in his energy bills before the cap, which “would probably have finished us off”.

“At present, our cheapest room rate is £110 per night. We would have had to raise that to £415 per night,” he told the BBC’s Today program.

However, he said because his seasonal hotel will close for the winter and reopen in May, it was “absolutely impossible” to set prices for bookings given the support package will only run until April.

“The fact that it is going to be reviewed in six months is not practical,” he added.

Prime Minister Liz Truss said the government understood the “huge pressure” businesses, charities, and public sector organizations faced with bills. She added that the new scheme would provide “certainty and peace of mind”.

Bur Labour business spokesman Jonathan Reynolds said there were still questions about “how much this will cost and who will pay for it”.

Lib Dem Treasury spokesperson Sarah Olney said the “delayed announcement” left businesses “under a cloud of damaging uncertainty”.

“The government has no plan beyond these next six months, paralyzing businesses who need to make decisions for the long term,” she added.

The support will apply to all non-domestic energy customers in England, Scotland and Wales. A scheme offering comparable support will be established in Northern Ireland.

Officials have not said how much the package will cost the taxpayer, but Cornwall Insight estimates it at around £25bn.

Energy-intensive industries, such as steel-making, have warned that businesses could go bust due to their energy costs, which have surged since Russia invaded Ukraine.

Unlike households, businesses are not covered by an energy price cap, which is the maximum amount a supplier can charge per unit of energy. It means non-domestic bills have soared even higher.

The government announced earlier this month that bills for a typical household would be limited to £2,500 annually until 2024 under a separate scheme.