The UK government said it’s cutting energy support to businesses from April as Chancellor of the Exchequer Jeremy Hunt seeks savings to help shore up the public finances.
(Bloomberg) — The UK government said it’s cutting energy support to businesses from April as Chancellor of the Exchequer Jeremy Hunt seeks savings to help shore up the public finances.
A new 12-month program to help Britain’s companies cope with high energy costs will start in April and be worth as much as £5.5 billion, Treasury minister James Cartlidge told the House of Commons Monday. That compares with £18 billion over six months for the program it’s replacing.
“It is not sustainable for the exchequer to continue to support large numbers of businesses at the current level,” Cartlidge said. “No responsible, serious government anywhere in the world can permanently shield businesses from this energy price shock.”
The UK has been paring back its energy support packages as Hunt and Prime Minister Rishi Sunak try restore fiscal credibility after the economic shock of former premier Liz Truss’s 7-week tenure last year. But manufacturers say they may need to cut jobs and production due to rising energy costs.
The initiative was introduced to shield firms from soaring prices exacerbated by Russia’s war in Ukraine.
Under the new program, most firms will be able to get a maximum discount of £19.61 per megawatt-hour for electricity and £6.97 per MWh for gas, according to Treasury documents. Energy-intensive firms will be able to benefit from greater discounts, amounting to £89.10 per MWh for electricity, and £40 per MWh for gas.
Companies will only begin to get subsidies for their energy costs if they’re paying above a level of £107/MWh for gas and £302/MWh for electricity. For energy-intensive companies, the respective thresholds at which assistance begins are £99/MWh for gas and £185/MWh for electricity.
Wholesale gas and power prices have dropped heavily since summer highs, with an influx of liquefied natural gas to Europe and relatively mild weather helping to ease the strain on the energy system by bolstering storage on the continent.
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However, prices are still about triple the normal level before the crisis, with month-ahead gas around 180 pence per therm.
Tony Jordan, senior partner at the energy consultancy Auxilione, said that “no new contracts will likely qualify,” because the new thresholds quoted are higher than current price levels. “This will only capture those that fixed prices in late summer when they were above these levels. The pool of qualifying businesses will be small.”
Martin McTague, national chair of the Federation of Small Businesses, said the reduction in help is a “huge disappointment”.
“This is so out of touch,” McTague said in an e-mailed statement. “The government will inevitably have to come back.”
UK Steel, a lobby group, said the new program is less generous than the energy support offered in Germany, which will put British steel producers at a disadvantage.
Unlike household consumers, businesses aren’t traditionally protected by a regulatory price cap and are usually more exposed to wholesale prices. Business suppliers aren’t expected to hedge energy purchases and their traders often buy power and gas in short-term markets on behalf of large industrial customers.
(Updates with industry reaction from eighth paragraph.)
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