Businesses’ energy bills support package well-targeted at tackling soaring bills

The Government’s Energy Bill Relief Scheme strikes the right balance of tackling businesses’ soaring bills, while avoiding offering support for businesses who don’t need it, which would have been the case had grants been offered instead of reductions in the price of energy targeted at those firms exposed to recent cost surges, the Resolution Foundation said today (Wednesday).

The latest support for business, who use 65 per cent of electricity and 41 per cent of gas in the UK, is generous but not strictly equivalent to the support being offered to households.

Firstly, that is because it’s limited to the next six months. This will sensibly give firms a clear incentive to invest in energy efficiency measures now, although the high uncertainty firms face about their future energy costs may discourage wider investment plans.

While firms are likely to be disappointed by this time limit, and will lobby hard for who gets what further support after March 2023, the current approach is sensible for both cost and energy efficiency reasons, says the Foundation.

Secondly, while today’s support carries a large price tag, to be confirmed on Friday, the design means it is not a blank cheque – in marked contrast to the support for households. The level of discounts being offered to firms will not rise if the wholesale costs of energy rise.

The Government has also provided some much-needed certainty on support for households in Northern Ireland not previously covered by measures reducing the cost of gas and electricity, and those using heating oil. 1.6 million homes across the UK use heating oil, including 68 per cent of households in Northern Ireland, who will receive an additional £100 payment per household.

Emily Fry, Economist at the Resolution Foundation, said:

“Today’s welcome package of support for business strikes the right balance of preventing firms being hit with soaring bills this winter, while encouraging them to become more energy efficient, and avoiding giving support to firms on longer term energy contracts who frankly don’t need it.

“Today’s package requires another large cheque from a government already grappling with higher borrowing. But, unlike with support for households, that cheque is not blank – reflecting limits on the size of the discount firms can receive.

“Overall, the Government’s energy bills support package is welcome, but expensive, and could easily cost over £100 billion. The refusal to cover more of this cost with windfall and solidarity taxes will add pressure on the Bank of England to up the pace and scale of interest rate rises, which will start to be felt by mortgagors in the months ahead.”