Government outlines plans to help cut energy bills for UK businesses, public sector and households

New support for households, businesses and public sector organisations facing rising energy bills in Great Britain and Northern Ireland has been unveiled by Business Secretary Jacob Rees-Mogg today (Wednesday 21 September) – supporting growth, preventing unnecessary insolvencies and protecting jobs.

Through a new Government Energy Bill Relief Scheme, the Government will provide a discount on wholesale gas and electricity prices for all non-domestic customers (including all UK businesses, the voluntary sector like charities and the public sector such as schools and hospitals) whose current gas and electricity prices have been significantly inflated in light of global energy prices. This support will be equivalent to the Energy Price Guarantee put in place for households.

It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.

As with the Energy Price Guarantee for households, customers do not need to take action or apply to the scheme to access the support. Support (in the form of a p/kWh discount) will automatically be applied to bills.

To administer support, the Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter – which is a discounted price per unit of gas and electricity. This is equivalent to the wholesale element of the Energy Price Guarantee for households. It includes the removal of green levies paid by non-domestic customers who receive support under the scheme.

The level of price reduction for each business will vary depending on their contract type and circumstances:

• Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.
• Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. This is why the Government is working with suppliers to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support.
• For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.

A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market fundamentals, will be established in Northern Ireland.

If you are not connected to either the gas or electricity grid, equivalent support will also be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas. Further detail on this will be announced shortly.

We will publish a review into the operation of the scheme in three months to inform decisions on future support after March 2023. The review will focus in particular on identifying the most vulnerable non-domestic customers and how the Government will continue assisting them with energy costs. 

Prime Minister Liz Truss said:

“I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods. 

“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.

“At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”

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.”

Business Secretary Jacob Rees-Mogg said:

“We have seen an unprecedented rise in energy prices following Putin’s illegal war in Ukraine, which has affected consumers up and down the country and businesses of all sizes.

“The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support.

“This, alongside the measures we are taking to boost the amount of domestic energy we produce to improve both energy security and supply, will increase growth, protect jobs and support families with their cost of living this winter.”

Kate Nicholls, CEO of UKHospitality, said:

“This intervention is unprecedented and it is extremely welcome that Government has listened to hospitality businesses facing an uncertain winter. We particularly welcome its inclusiveness – from the smallest companies to the largest – all of which combine to provide a huge number of jobs, which are now much more secure. The Government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the Government, to ensure that there is no cliff edge when these measures fall away.”

Support for households in Great Britain and Northern Ireland

Today’s announcement follows the launch of the Energy Price Guarantee for households in Great Britain, under which a typical household will pay on average £2,500 a year on their energy bill for the next two years from 1 October.

The scheme limits the price suppliers can charge customers for units of gas and electricity, taking account of the Exchequer temporarily funding for two years environmental and social costs, including green levies – worth around £150 – which are currently included in domestic energy bills. The guarantee supersedes the existing price cap and is expected to save the average household £1,000 a year based on current energy prices from October.

It also comes in addition to the announced £400 energy bills discount for all households and together, they will bring costs close to where the energy price cap currently stands.

Today, the Business Secretary also confirmed equivalent support for households in Northern Ireland. The Northern Ireland Energy Price Guarantee will offer households the same level of gas and electricity bill support as the equivalent scheme in Great Britain.

Households in Northern Ireland will also receive a £400 discount on bills through the Northern Ireland Energy Bills Support Scheme (NI EBSS), the same support as is available in Great Britain.

For the Energy Price Guarantee, the scheme will still work through electricity and gas bills. The scheme will provide households in Northern Ireland with equivalent financial support with their electricity and gas bills as for those in Great Britain. Energy suppliers will reduce bills by a unit price reduction of up to 17p/kWh for electricity and 4.2p/kWh for gas, and there is no need to take any action to receive this support. This will take effect from November, but the Government will ensure households receive support so they will see the same benefit overall as those households in Great Britain backdating support for October bills through bills from November. 

Targeted support

The Government also announced today further details on the separate Energy Bills Support Scheme (EBSS) to ensure that the £400 discount to households starting from October will also be available to the 1% of households who would not otherwise have received this support.

Additional funding will be made available so that £400 payments will be extended to include people such as park home residents and those tenants whose landlords pay for their energy via a commercial contract. The government is committed to ensuring such households receive the same support for their energy bills.  The Government will introduce legislation to make sure landlords pass the EBSS discount on to tenants who pay all-inclusive bills.

The Government will also provide an additional payment of £100 to households across the UK who are not able to receive support for their heating costs through the Energy Price Guarantee. This might be because they live in an area of the UK that is not served by the gas grid and is to compensate for the rising costs of alternative fuels such as heating oil.

Sector Response

Geoff Barton, General Secretary of the Association of School and College Leaders, said:

“We are pleased that the government has published details of how the energy bill relief scheme will work for non-domestic customers, including schools and colleges, and, crucially, the gas and electricity unit prices they can expect to pay. This move was essential as schools and colleges were facing absolutely massive hikes in energy costs which were simply unaffordable and would have caused an immediate financial meltdown in the sector. We will now be looking at the scheme in detail and asking for feedback from school and college leaders.

“The glaring problem is the fact that the scheme is time-limited to six months. The government says it will review the operation of the scheme in three months’ time to inform decisions on future support after March 2023. However, this uncertainty makes it impossible for schools and colleges to plan financially with any degree of confidence because they could be knocked off course at a later date by steep rises to energy bills if government support drops off. School and college budgets are incredibly tight and any financial ill-wind is potentially devastating. We will be pressing the government for a firmer commitment to the sector.

“Furthermore, energy prices are only one of the massive financial pressures facing schools and colleges. The other issue is the fact that pay awards for teachers and support staff have been agreed at a national level but there is no additional government funding for schools and colleges to be able to afford the cost of these awards. The pay awards are fully deserved and needed – and in fact do not go far enough – but the government’s expectation that this will be paid for out of existing budgets that are already very tight is completely unrealistic and unsustainable. The government must improve the funding settlement for schools and colleges.”

Kevin Courtney, Joint General Secretary of the National Education Union, said: 

“The Government’s Energy Bill Relief Scheme provides a ceiling on funding pain, but the limits of £211 per megawatt hour for electricity and £75 per MWH for gas do not compensate for the rise in wholesale energy costs. Schools are still paying vastly more for their energy than was expected a year ago, with harmful consequences for education.

“Six months of support only gets us to March 2023, which is clearly inadequate if prices stay high, and doesn’t compensate schools for extra costs incurred. Schools need a long-term solution which meets costs, not a series of hasty and poorly considered short-term deals.

“The Government has approached energy bills with sloth. Schools are sadly all too aware that their relationship with government remains an afterthought, receiving incomplete support well past the eleventh hour.

“Energy bills are a symptom of the wider problem in education funding. Funding remains lower in real terms than it was in 2010, and the meagre pay rise for teachers has not been funded by government. Unless funding is significantly improved, schools will have little option but to increase class sizes, cut subject choice, and reduce additional support.”

Matthew Fell, CBI Chief Policy Director, said: 

“We welcome government’s quick and decisive action to provide hard-pressed businesses with a substantial short-term fix to a long-term problem.

“The package will ease worries about otherwise viable businesses shutting-up shop and smaller companies especially will benefit from the discounted rate.

“Businesses will also want to know more about the exit strategy and what happens when the six-month cap runs out. Working closely with business will be key to successful implementation.

“The long-run solution is to double-down on energy security and to incentivise firms to push ahead with ambitious energy efficiency programmes to lower demand.”

Kate Shoesmith Deputy CEO, Recruitment & Employment Confederation said:

“We greatly welcome the government’s Energy Relief Scheme which will cut prices for business as well as other non-domestic organisations for six months. This will provide a much-needed life line for many small businesses in particular. Although this is much-needed relief, as we have said to the Chancellor, Kwasi Kwarteng in our Budget submission – businesses need longer-term stability at a time of economic uncertainty.

“We would encourage the BEIS and Treasury to be thinking ahead to how quickly they can give businesses more guidance on further support to help them plan the cost of goods and services for the next year followed by a review. As ever we want to work with the government to create a growth in the economy.”

Walid Koudmani, chief market analyst at financial brokerage XTB comments:

“The cap on wholesale energy prices was desperately needed for businesses with the high street especially facing a cold and dark winter ahead. In this sense, it will give businesses some much needed relief. There are two immediate question marks however.

“First, how much will it cost and what is the impact on UK borrowing? Remember this comes on top of the announced £150bn package for households in the next two years. With the treasury refusing to publicise the latest OBR forecasts in this week’s mini budget, it’s no wonder that investors are selling the pound yet again this morning. Secondly, is six months really enough? I can foresee that being extended but nevertheless, this is a good first step.”

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.”

Commenting as the government outlines its plans to help support businesses and public services with energy bills, Paul Whiteman, general secretary of school leaders’ union NAHT, said:

“While it is positive to have more detail on the government’s plans to help schools with spiralling energy costs, we have real concerns that this just doesn’t go far enough,

“Though it is good to see that schools who have reached the end of their contract and switched since April will be helped, we’re concerned that those who were hit with higher prices before that won’t be. There will be some schools who slip through the cracks.

“We are also very concerned that schools do not have any certainty on costs beyond 6 months – schools budget for the whole school year, 6 months doesn’t really solve things for them when they have no idea what will be facing them in the Spring term. Schools will potentially still have to be diverting money towards energy and away from education, to avoid a nasty shock in 6 months’ time.

“Even with this cap many schools will still find they are left facing much higher bills than budgeted for, which will necessitate extensive cuts to their educational offer. In a truly desperate situation, this plan is better than nothing, but unfortunately it doesn’t get close to solving the current funding crisis in schools.

“Energy bills are only one of the massive cost pressures facing schools this term. The government’s decision not to fund teachers’ pay this year is an enormous hit to school finances, and many other costs are rising due to inflation too. The government urgently needs to take another look at education funding as a whole.”

Economy Minister, Vaughan Gething, said:

“Today’s announcement will ease some of the pressures on businesses and I urge the UK Government to pass the necessary legislation swiftly so that the full discounts are passed onto Non-Domestic customers and without delay.

“While the support is welcome it may not be sufficient for many of Wales’s small and medium sized businesses which are facing up to six-fold price increases in their energy bills.  A high proportion of these businesses are already struggling to break even post-pandemic.

“Wales’s small businesses are the backbone of our communities providing vital jobs and incomes for local people and part our foundational economy.  If these businesses fail, we will see increased unemployment, increased vulnerability and disruption to important supply chains.

“The measures provide businesses with only a temporary respite and little certainty to help them plan ahead.  Many will be forced to close if they are not sufficiently supported.  Therefore, I call upon the UK Government to commit to a longer-term plan to give more certainty to enable businesses to cope with persistent high energy costs

“We are closely scrutinising the UK Government support announced today to see whether there is more we can do to support Welsh businesses.  This includes looking at ways of helping businesses reduce energy usage or increase energy efficiency.

“However, let’s be clear, the main levers to support businesses rest firmly and squarely with the UK Government.”