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UK cuts business energy aid by about 85% for next financial year

Updated: May 2, 2023



The government said the existing level of support was "unsustainably expensive," thus plans were made to reduce it by roughly 85% to 5.5 billion pounds ($6.7 billion) for the upcoming fiscal year.


The government's budget watchdog produced predictions in November estimating the cost of the current six-month energy support programme, which expires at the end of March.


"My top priority is tackling the rising cost of living -something that both families and businesses are struggling with," finance minister Jeremy Hunt said in a statement. "That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able."


The finance ministry has been looking at ways to pare back the energy support packages as it tries to stabilise the nation's public finances after the political and economic turmoil under former Prime Minister Liz Truss's short-lived government.

Between April 2023 and March 2024, the government predicted that the majority of firms will save up to 6.97 pounds per megawatt hour (MWh) on gas and 19.61 pounds per MWh on electricity.


In contrast to the current programme, where the government set a maximum business price of 75 pounds per MWh for gas and 211 pounds per MWh for electricity and compensated energy suppliers in the event of higher wholesale rates, this structure is different and less forgiving.


If energy prices increase, businesses will be responsible for covering the additional costs under the new programme, not the government.


Additional support will be provided through the new programme for a few energy-intensive enterprises, particularly in the manufacturing sector.



PRICE VOLATILITY


British natural gas prices spiked after Russia invaded Ukraine in February 2022, starting in the second half of 2021.


Since then, prices have been very erratic. Despite being lower than when the current assistance package was announced and back to where they were a year ago, they are still far higher than they were in the beginning of 2021.


Hunt said he was concerned that the benefit of falling prices was not being passed on to businesses, so he has written to the energy regulator Ofgem asking for an update on whether action is needed.


The government had originally been due to publish its proposals for business energy support before the end of 2022, but the decision was delayed, angering some businesses facing uncertainty over their energy bills.


Britain's Federation of Small Businesses said the reduced support was "a huge disappointment".


"Many small firms will not be able to survive on the pennies provided through the new version of the scheme," FSB National Chair Martin McTague said.


The majority of UK Steel's members will gain from the additional help for high energy users, but the company expressed cautious acceptance for the initiative and noted that it was still less generous than the assistance Germany provided to its steel producers.


"The government is betting on a calm and stable 2023 energy market, in a climate of unstable global markets, with the scheme no longer protecting against extremely volatile prices," UK Steel Director General Gareth Stace said.



 



0151 459 3388 | info@smart-energy.uk



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