Cost-of-living crisis: UK Government unveil six-month business support package, but businesses warn of cliff edge

Businesses have demanded more detail and warned of a “cliff” edge after the UK Government unveiled a six-month support package that will cap the wholesale cost of gas and electricity.

Minister announced the wholesale cost of gas and electricity will be slashed for companies under a scheme that will run for six months starting from October 1, and see bills almost halved.

This will see the Government cap the wholesale price paid by non-domestic customers, which include schools, hospitals and charities.

Business Secretary Jacob Rees-Mogg has set out details of a major Government support package for businesses.

Chancellor Kwasi Kwarteng said: “We have stepped in to stop businesses collapsing, protect jobs and limit inflation.

“And with our plans to boost home-grown energy supply, we will bring security to the sector, growth to the economy and secure a better deal for consumers.”

However, business groups and opposition parties were mixed on the plans, suggesting it was insufficient.

The Night Time Industries Association Scotland (NTIA) welcomed the announcement, but expressed concern over the details.

In a statement, the organisation said: “We remain concerned that this measure to cap the wholesale price of energy supply [for] companies may not result in sufficient relief being extended to business customers, given that energy suppliers remain free to impose additional mark-ups such as network charges and operating costs, which are uncapped.

"The net result of this could be a position where small businesses are still being asked to pay unaffordable energy bills of several hundred per cent more than in previous years, which is clearly not sustainable."

The NTIA added: “[This also] does nothing to alleviate the high levels of energy supply debt incurred by businesses exposed to uncapped pricing over the last few quarters and, in isolation, is unlikely to be enough to ensure businesses have the financial headroom to survive this winter.

“If we are to ensure the survival of our sector it remains imperative that the announcement today is followed up with further action by Government in the fiscal event this Friday, and that such action must incorporate our core asks, especially business rates relief and a reduction in VAT across the board.”

The Federation of Small Businesses Scotland (FSB) said the support came “not a moment too soon”, but warned it did not go far enough.

Andrew McRae, Scotland policy chair for the FSB, said: “For those who were facing four or fivefold increases in their bills, a reduction on the cost per unit will provide some welcome relief and allow them to plan their way through surviving the winter.

“At the same time, we’re concerned that there is no mention of a cap on rises to standing charges. We’ll need to watch that closely, so today’s move leads to a genuine, significant reduction in bills.

“The promise of equivalent support for those using heating oil is also welcome, as it is relied on by many small businesses, especially in more rural areas.

“Yet, there are questions about what happens when the six months run out. We can’t have businesses simply falling over a cliff in the spring if this relief is withdrawn.

“Neither can we have businesses who had no choice, but to sign up to expensive deals before April left out in the cold. That’s why we are calling for a hardship fund to be created for those who fall outside of the current support, or for whom the current support will be insufficient.”

The “supported wholesale price” is expected to be £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.

That is around half the expected wholesale price on the open market, and equivalent to the cap on household energy bills that will be set this October and run for two years.

Organisations which signed fixed-price energy deals on or before April 1 this year will see the wholesale part of their bill capped automatically.

Those who entered new fixed-price contracts after October 1 will get the same support.

Companies on default, deemed or variable tariffs will be given a per-unit discount, but the amount of support they can get is limited.

Deputy First Minister John Swinney said the business support scheme may be “inadequate” without reform of the energy market.

A review will take place in three months that will look at support to be made available after March, which the Government said will focus on “the most vulnerable non-domestic customers and how the Government will continue assisting them with energy costs”.

Mr Swinney said: “Energy policy is reserved to the UK Government and we have been calling for it to introduce a business energy cap for some time.

“I welcome that it has now done so, but without substantial reform to the energy market there is a real risk that this temporary measure will prove to be inadequate.

“Given the increased cost of borrowing this support must be funded, in part, by targeting windfall gains in the energy sector.”

Mr Swinney called for changes to the current approach on electricity transmission charging, adding: “The UK Government also needs to match the more generous levels of support provided by EU countries such as Germany.”

The Liberal Democrats labelled the measures a “sticking plaster” that came too late.

Lib Dem Treasury spokesperson Sarah Olney said: “This temporary sticking plaster comes too late for the many small businesses that already closed their doors for the last time because they couldn’t afford soaring bills.

“The Conservatives have sat on their hands for months while treasured pubs, cafes and high street shops went to the wall.

“This delayed announcement will leave our small businesses, schools and hospitals under a cloud of damaging uncertainty. The Government have no plan beyond these next six months, paralysing businesses who need to make decisions for the long term. Support for high streets and public services should be in place for at least the next year and include measures to improve energy efficiency and cut bills in the long term.

“The announcement shows the Conservatives have no plan and no understanding of the pressures facing our businesses and public services.”

Business secretary Jacob Rees-Mogg hinted that help with energy bills for schools, hospitals and care homes could continue in a year.

Asked if schools facing similar gas prices as today would still get Government support in 12 months, he told Sky News: “Schools and hospitals and care homes are obviously going to [need to] be able to afford their energy in a year’s time as well as today.

“I can’t announce future schemes, it would be wrong to do so, but we need to make sure that we use this time to find out where the support is needed.”