Expert comment: Chancellor scales back Energy Bill Relief Scheme for businesses

Categories: Salford Business School

Dr Gordon Fletcher, School Lead for Research at University of Salford Business School, comments on the impact of Chancellor Jeremy Hunt scaling back energy bill support for businesses. Under the new Energy Bill Relief Scheme, the level of support will be cut by more than two-thirds, which is expected to have a detrimental impact on companies, their workers and in turn the economy.

With the current Energy Bill Relief Scheme coming to an end in March there was general expectation of a government response that would revise the scheme. The current six-month scheme that supports businesses is relatively complex based on a range of criteria, contract types and restrictions but is fortunately applied automatically by the supplier. The key value that determines if the government will support a business is the current wholesale fuel prices compared against a fixed "government supported price." This support has clearly been enough to help some businesses and even keep many from going under. For other businesses, including those with higher consumption or seeking new contracts, other elements found in their final bill (such as the cost of supply) have continued to rise to levels that are increasingly unsustainable.

Under the new scheme announced by the Chancellor earlier this week, it’s concerning to see the level of support slashed by more than two-thirds and the government now alleviating costs by such an insignificant amount. Something that will be completely unworkable for many businesses and is likely to lead to many having little choice but to close their doors. The detrimental impact this could have on companies, their workers and in turn the economy is immeasurable.

While the revised scheme is set to provide more support into sectors most prone to high energy costs, such as heavy manufacturing and hospitality, there’s a case to be made for more targeted policies. A revised policy that recognises the wider economic benefits of letting businesses continue to function through hard times rather than be delayed or even permanently closed is the view being pushed consistently across many business groups. The initial fear that the policy would shift ground from attempting to make costs predictable to a simpler discounting model have ultimately come true.

With the wholesale prices of natural gas and electricity reaching a six-month low on the 4 January, the government might well be hoping for continued spells of warm weather to help push down overall demand. An irony left unsaid that climate change caused in part by consuming these fuels was now helping to reduce the demand to consume even more. However, the warmer weather coincided with the Chancellor Jeremy Hunt describing his own policy as "unsustainably expensive." An early warning of the direction of thinking at Number 11.

Meanwhile, the signals are that profits for the major UK energy providers will remain healthy with an October report projecting £170bn in additional profit over the next two years. The Energy (Oil and Gas) Profits Levy should claw at least £9bn of this back into the public purse - or, in other words, about half of the cost of the current Energy Bill Relief Scheme.

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