UK firms face ‘cliff edge’ when Government support drops, experts warn

Experts have warned that businesses are facing a “precarious cliff-edge” over energy costs once Government support becomes less generous in April. Under the energy bill support scheme, the Treasury has been shielding companies and households from the full extent of high wholesale energy costs sparked by Russia’s war in Ukraine. Running from October until the end of March, the scheme is set to provide far lower levels of support when it changes in April.

This is despite gas prices plunging to pre-Ukraine war levels, and this week hitting an 18-month low. Despite this, Chancellor Jeremy Hunt has previously said he will not budge on keeping price caps for households and businesses at current levels.

This is partly because prices are still around three times the level they were before the start of the pandemic. This has put a major strain on many businesses, particularly energy-intensive ones, as bills remain at record highs.

Now, energy consultancy Cornwall Insight has warned of a “precarious cliff edge when the business support scheme comes to an end”. It added that some businesses could face seeing their gas and electricity bills rise by as much as 70-80 percent.

Robert Buckley, Cornwall’s head of relationship development, said: “Companies were going to have to get used to a high energy price environment, but for some this could have a catastrophic, house of cards effect.

“The more you pay on your energy bills the less you have to invest in your current business.”

However, the extent of the price rises will depend on individual contracts signed. Despite this, the declining government aid will most heavily impact businesses that locked in rates at the peak of the market last August.

Mr Buckley said: “There will be a small number of customers who have scrimped and saved over the summer to buy at a certain price and now aren’t benefiting from lower wholesale prices.”

Tina McKenzie, policy chair of the Federation of Small Businesses, has appealed for support for “vulnerable” firms, arguing that energy retailers should let them renegotiate their contracts to reap the benefits of the latest dip in wholesale prices.

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But before the drop in gas prices, which came as a result of European nations filling up their gas reserves, securing liquefied natural gas from alternative producers (not Russia) and mild weather, Mr Hunt made it clear that the current levels of support were not sustainable .

He told business leaders it was always limited to run for six months and that extending the scheme in its current form could “cost tens of billions of pounds”, depending on the price of wholesale energy. That figure is now likely to be lower now that prices have dropped.

And not all businesses are so concerned about the scaling back of the energy bill relief scheme. The Confederation of British Industry (CBI), for instance, has said that “the scheme will provide respite for many firms at the start of the year and help them plan ahead for the next 12 months with more certainty”.

CBI director for decarbonisation policy, Tom Thackray, said: “It’s unrealistic to think the scheme could remain affordable in its current form, but some firms will undoubtedly still find the going hard.”

“Heavy energy users and those exposed to global trade are among some of the most impacted in the current crisis, so the additional support for these firms is a particularly welcome step.”

Even UK Steel, which represents energy-intensive companies, welcomed the scheme. However, it has warned that it could put UK manufacturing companies at a disadvantage to some European competitors.

Germany, France and Italy have all extended and increased support for energy-intensive industries, for example.

The Energy Intensive Users Group, which represents steel, chemical and ceramics manufacturers, said: “Although welcome, the level of relief the UK government proposes to provide from April still puts UK energy-intensive users at a competitive disadvantage internationally.”

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