Capping energy prices for households and businesses

One of the themes of 2022 has been the inexorable rise in energy prices, largely driven by Russia's invasion of Ukraine. Successive increases to the price cap for domestic energy users caused fear of a hard winter ahead for households while businesses that faced uncapped prices were threatened with going under.

Ofgem's decision to hike the price cap by 80%, meaning average household energy bills would rise to £3,549 in October, appeared to be the final straw for government. September saw the government intervene with packages of support for households and businesses. Here, we look at the energy support schemes.

Energy Price Guarantee plan caps household bills

Prime Minister Liz Truss announced the Energy Price Guarantee (EPG) for households on 8 September 2022 and it will apply from the start of October 2022. The EPG means that a typical household will pay no more than £2,500 per year for each of the next two years. It comes in addition to the £400 Energy Bill Support Scheme.

The EPG limits the price suppliers can charge customers for units of gas. This takes account of temporarily removing green levies, worth around £150, from household bills. The guarantee will supersede the existing energy price cap.

Under the plan, those households who do not pay directly for mains gas and electricity, such as those living in park homes or on heat networks, will be no worse off and receive support through a new fund.

Substantial benefits

The government estimates that the EPG will deliver substantial benefits to the economy - boosting growth and curbing inflation by four to five percentage points, which will in turn reduce the cost of servicing the national debt.

The government will provide energy suppliers with the difference between this new lower price, and what energy retailers would charge their customers if this were not in place. Schemes previously funded by green levies will also continue to be funded by the government during this two-year period to ensure the UK's investment in homegrown, secure renewable technologies continues.

Sigh of relief

Chancellor Kwasi Kwarteng said: 'Millions of families and businesses across the country can now breathe a massive sigh of relief, safe in the knowledge that the government is standing behind them this winter and the next.

'The price of inaction would have been far greater than the cost of this intervention. Not only can we provide urgent support now, but the beauty of our scheme is that it will also bring down inflation, helping tackle wider cost of living pressures.'

Help to cut energy bills for businesses

On 21 September 2022 the government announced the Government Energy Bill Relief Scheme. This is designed to cut energy prices for non-domestic energy customers, such as businesses, charities and public sector organisations. It also said that government work with suppliers will aid in reducing wholesale energy costs for UK businesses.

Through the Government Energy Bill Relief Scheme, the government will provide a discount on wholesale gas and electricity prices for all non-domestic customers, including businesses, charities and the public sector, whose gas and electricity prices have risen significantly. 

The scheme will apply to fixed contracts agreed on or after 1 April 2022 in addition to deemed, variable and flexible tariffs and contracts. Running for an initial six-month period, the scheme will apply to energy usage from 1 October 2022 to 31 March 2023. According to the government, savings will first be seen in businesses' October bills. 

No action required

Businesses are not required to take action or apply for the scheme - support will be automatically applied to bills. In order to administer the support, the government has set a Supported Wholesale Price which is a discounted price per unit of gas and electricity. These prices are expected to be set at £211 per MWh for electricity and £75 per MWh for gas. The level of price reduction for each business will vary depending on their contract type and circumstances, the government said. 

The government intends to conduct a review of the scheme to assess:

  • how effective it has been in giving support to businesses
  • which groups of non-domestic customers remain vulnerable to energy price rises; and 
  • the extent to which the scheme could either be extended or further targeted.

At the Mini Budget, Mr Kwarteng announced that the two energy support packages would cost £60 billion for six months.

Unprecedented intervention

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.'

Although these packages ease the financial costs faced by businesses and households other economic headwinds persist. If you need advice on improving your cashflow please contact us.

 


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