Energy price guarantee – is six months enough for businesses?

Will the Government’s Energy Bill Relief Scheme give struggling businesses the support they need?

Businesses and other non-domestic energy users including schools, hospitals and not-for-profit organisations are now eligible for a new government scheme known as the Energy Bill Relief Scheme (EBRS), which caps the amount energy companies can charge per unit.

The Government Supported Price has been set at £211 per megawatt-hour (MWh) for electricity and £75 per MWh for gas.

Although unit prices per MWh are still over double than they were a year ago, the scheme ensures that energy bills will still be considerably less than they would otherwise have been over the 2022/2023 winter months had nothing been done.

The scheme is similar to the initiative for domestic households, but with one significant difference: it will only last for six months.

After that, struggling industries such as hospitality and leisure and tourism could benefit from an extended scheme, depending on the outcome of a government review in three months’ time.

The Government has already announced that a new Energy Supply Taskforce has been launched to negotiate reduced charges via long-term contracts.

As it stands, the price cap per unit amount will depend on the type of energy contract:

• Fixed-term contracts agreed on or after December 2021 for the period 1 October 2022 to 31 March 2023: the automatic discount will be applied retrospectively, providing the wholesale unit price is above Government Supported Price (£211/MWh for electricity and £75/MWh for gas). Cost will therefore be reduced by the relevant unit price per kilowatt.

• Businesses entering new fixed-term contracts after 1 October 2022 will receive the same discount.

• Flexible contracts: The per unit discount amount will depend on the difference between the monthly weighted average baseload price and government supported price.

• Default, deemed contract or variable tariff: The per unit discount amount will be up to the maximum difference between the government support price and the average expected wholesale price over the six-month period. Although these customers may pay lower bills, these are likely to fluctuate over time.

The scheme is intended to help businesses and non-domestic energy users over the winter months, but is six months enough?

Six months isn’t enough for businesses suffering cash flow issues from Covid

Jessica Middleton, co-founder and CEO, MPAS UK

Businesses have just faced the most challenging two years of their existence: COVID, an impending recession and now energy costs. Many businesses have built up debt and are still suffering the impact of major cash flow issues, many of which aren’t truly felt until months later. The energy cap is no different. Whilst it may take the sting out of winter, it hasn’t changed the fact that businesses are still struggling to meet rising costs. 6 months is a start, but it’s not enough.

Our clients are panicking about how to meet the cost of energy. Customers aren’t coming in quick enough to outpace the rising cost. They are grateful some of the cost has been reduced but feel it won’t be enough in the long term. Just today, a client contacted us in a panic about how they were going to afford to make payment of their energy bill alongside other bills such as rent, which has also increased. It’s definitely causing distress, even with a cap.

Next steps:  Take weekly meter readings if you have an accessible meter and start a spreadsheet, recording dates and amounts based on the letter sent by your energy company explaining your p/kwh.

Verdict: Businesses are still suffering with cash flow issues due to Covid and concerned the support won’t be enough long-term.

No – crisis planning requires 12-24 months to weather the storm

Kevin Johns, MD, Prime Accountants Group

All businesses know that when undergoing a crisis, you create a 12 to 24-month plan to help weather the storm.

With people having spent months already worrying about energy prices, a mere six-month deferral for the real repercussions to hit households and businesses is not enough. This delay encourages further worry and speculation, which comes with its own problems, such as reduced expansion investment from businesses, due to the uncertainty of future finances.

We have clients coming to us weekly worrying about finances, with some experiencing cash flow issues as a direct result of the energy crisis. More of our clients are being asked to provide an energy deposit in order to rent office spaces and buildings, with one client needing to provide a deposit for office space they rent on a 12-month lease to prove they can afford the estimated 271 per cent increase in the cost of energy to run the building.  Some businesses are putting in flexible energy surge prices when invoicing, to match the rising cost.

Next steps: The advice for businesses remains similar to those in households – turn off lights, turn off computers when not in use and remember to keep doors and windows shut to keep the heat in.

Verdict: Crisis planning requires at least 12-24 months – six months will be of little help.

No – businesses are struggling with every aspect of the cost of living not just energy prices

Simon Thomas, MD, Ridgefield Consulting

Businesses are not only struggling with energy prices but every aspect to do with the cost of living, from cost of supplies and stock, long lead times to procure them and paying employees a fair wage, not to mention customers who are reining in spending and counting every penny. The energy price guarantee barely scratches the surface of support that businesses need to survive.

We have a specific client that came to us for advice as he was looking to purchase a fleet of electric vehicles. With the rising cost of fuel and now energy, he wasn’t sure whether it was a good time to invest and expand his business. Ultimately, we advised that he go ahead and make full use of the first-year capital allowance to reduce his corporation tax as much as possible.

Next steps: Take advantage of the Annual Investment Allowance which will be kept permanently at £1million and invest in energy-efficient products for your business if possible. Whether that’s insulating offices/warehouses or just upgrading appliances to more energy-efficient products, if you have the means to do so, it’ll be worth it in the long run.

Verdict: The scheme barely scratches the surface of the support businesses need to survive.

It could be a case of kicking the can down the road

Nick Paterno, Managing Partner, McBrides Chartered Accountants

The welcomed help for the next six months over the winter could be a lifesaver for SMEs whose energy costs form a large part of their overall business running costs.

However, many SMEs and owner-managed businesses may be forgiven for asking whether there are sectors more vulnerable than others, when the act of running a business requires so much more than mere faith and ability, especially during the last two unprecedented years of pressure. It’s difficult to know if this is just a case of ‘kicking the can down the road’ or if it provides substance for future planning.

Speaking to clients, many need to know more about government plans to support business this year and want to hear as soon as possible whether National Insurance rises will be revoked not just for individuals but for businesses too.

Next steps: The government are encouraging firms to move from variable contracts to fixed-term ones.

Verdict: The effectiveness of the 6-month scheme depends if it provides substance for future planning or if it’s just kicking the can down the road.

Annie Makoff is a freelance journalist and editor.