Government energy bill support for businesses is “unsustainable” and will be drastically cut back, the Treasury has announced.
A new package of support costing up to £5.5bn will replace the current cap on the unit cost of electricity and gas for firms – which is set to expire at the end of March and was expected to cost tens of billions to extend further.
The new support will last one year and seeks to avoid a “cliff edge” for businesses after the current, more generous scheme comes to an end, James Cartlidge, exchequer secretary, told MPs.
The minister said a typical pub can expect up to £2,300 over the year – down from up to £3,100 per month under the current scheme.
In a statement to MPs, Mr Cartlidge said: “It is not sustainable for the Exchequer to continue to support large numbers of businesses at the current level.
He added: “It is not for the government to habitually pay the bills of businesses any more than it is to tell businesses how to turn a profit.”
Under the new support, non-domestic energy users will be given a discount of up to £6.97 per megawatt hour (MWh) of gas and £19.61 per MWh of electricity.
Companies paying less than £107 per MWh for their gas and £302 per MWh for their electricity will not get support.
There will be a special discount for some companies that use a lot of energy.
Chancellor Jeremy Hunt last week told business leaders that extending the current scheme would cost “tens of billions of pounds” and reiterated it was always limited to run for six months.
The scheme covers not just businesses, but also charities and public-sector organisations, including schools and hospitals.
Mr Cartlidge said the government was moving partly in response to sharp falls in wholesale energy prices, driven by unseasonably warm weather which has reduced the amount of gas that households and businesses need to use for heating and allowed European gas reserves to hold up well.
The treasury’s move is unlikely to go down well with businesses under pressure not only due to inflation of their operating costs but also from lost revenue as potential customers hit by the cost of living crisis choose to hold on to their money.
Last week, a hospitality industry body warned that around half of pubs and restaraunts were cutting opening hours in order to save money.
Representatives of the manufacturing industry warned that high energy costs would cause them to cut production this year. Stephen Phipson, chief executive of Make UK, said the energy support scheme had so far been “just a sticking plaster” and warned “making it less generous will make the situation worse for many companies”.
Households have already been told their bills will be capped until April 2024, albeit at a higher rate of £3,000 annually, up from the current £2,500, while firms have been kept waiting to hear what will be available to them.