New Energy Bill Discount Scheme is a dim light in the dark

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Accountants voice concern over scheme that “barely makes a dent” for small businesses.

A new government scheme for businesses, the Energy Bills Discount Scheme (EBDS), will soon be available for all eligible UK businesses, charities and public sector organisations until 31 March 2024.

EBDS will begin on 1 April 2023 once the previous Energy Bill Relief Scheme (EBRS) ends and will provide discounts for businesses struggling with high energy bills.

Businesses in energy-intensive sectors such as manufacturing, mining or those running certain visitor attractions will receive higher level of support as part of the pre-existing Energy and Trade Intensive Industries (ETII) scheme.

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The government say EBDS will help businesses that have been ‘locked’ into expensive energy contracts which were made before the fall in wholesale energy costs.

But the scheme is less generous than its predecessor and fewer businesses will be in scope.

  • The discount only applies to wholesale prices rather than having costs capped.
  • Only businesses paying over £107 per MWh for gas and £302 per MWh for electricity in wholesale prices will be eligible for EBDS.
  • Unit discounts provided by the scheme consist of (up to) £6.97/MWh for gas bills and (up to) £19.61/Mwh for electricity bills.

So what impact will this have on businesses, particularly small and micro businesess? We spoke to accountants for their thoughts.

Discounting bills instead of capping will causes budgeting and forecasting issues

Ashley Ritchie, founder, Campbell Ritchie Chartered Accountants

EBDS provides discounts of wholesale prices to eligible non-domestic customers who have a contract with a licensed energy supplier. However, the previous scheme placed a price cap on what users would pay and the government paid the difference to the suppliers. Under the new scheme, a discount is applied if the contract energy price is above threshold price (wholesale price of £107/MWh for gas and £302/MWh for electricity). This offers less protection to the consumer from volatile energy markets.

Small businesses, which arguably need the most help, are not receiving like-for-like support. And is it fair to leave entire sectors out of receiving additional support? Agriculture, for example, is one of the most energy dependent sectors (after manufacturing) but this sector will not receive the additional support offered to those which fall under Energy and Trade Intensive Industries (ETII).

Many small businesses are extremely concerned about their own longevity once the current scheme ends. Offering a discount on energy bills instead of a price cap means businesses cannot budget effectively. Growth plans for many of my clients have been put on hold as they can’t forecast their costs properly given the uncertainty around energy costs. This, in turn, has a knock-on effect for recruitment in the area.

Many businesses in the catering and hospitality sector now have extortionate energy bills along with increased food costs. The only thing keeping them afloat this past year was the Energy Bill Relief Scheme.

Verdict: Offering a discount on energy bills instead of a price cap means businesses can’t budget and forecast effectively, putting growth plans on hold and affecting recruitment.

Cash flow planning will be vital to businesses in the health and beauty sector

Ria-Jaine Lincoln MAAT, director, The Beauty Accountant

While I’m happy to see the scheme extended, it is hardly making a dent when businesses are still recovering from the pandemic, managing rising bills and loan repayments and navigating changes in customer behaviour.

The new scheme comes at a time when businesses are fighting their hardest to survive, especially with the cost of living and price increases being passed on. I do not think it goes far enough, especially where the health and beauty sector are concerned.

Health and safety requirements mean hair and beauty businesses are high energy consumers. It would therefore be good to see the government investing more in the sector and providing further support.

The next 12 months are going to be a matter of careful cash flow planning and serious review of pricing structures. If the energy prices are here to stay, the next challenge will come once the scheme ends.

Verdict: The scheme does not go far enough and the health and beauty sector in particular will struggle. To mitigate economic pressure, cash flow planning and rethinking pricing structures will be key.

The viability of small businesses will be called into question if support is withdrawn

Toby Ryland, Corporate Tax Partner, HW Fisher

The Government has stressed that wholesale energy prices have dropped and largely stabilised – hence why Government support is being reduced. However, this assumes that the energy companies will pass on these savings to their customers, which appears to be happening very slowly and does not assist businesses which are tied into contracts at higher tariffs.

The new scheme is aimed at businesses which are tied into high rate tariffs and those in particularly high energy industries (Energy and Trade Intensive Industries – ETIIs). ETIIs are largely manufacturing, food production and heavy industries (mining, steel, quarrying and similar) but also includes libraries, museums, historical sites and zoos.

Among the biggest losers will be leisure businesses with substantial energy requirements – for example, leisure centres and gyms with swimming pools. Additionally, restaurants will suffer due to the high levels of energy used by kitchens, and hotels due to high levels of hot water and heating usage.

Small businesses will inevitably be impacted. The reduced level of support will mean high costs remain and, coupled with increasing demands for wage increases, the viability of many small businesses will be called into question.

Overall, there remains significant financial pressure for many businesses.

Verdict: The viability of small businesses will be called into question if support is withdrawn. In particular, small businesses and the leisure and hospitality sectors will lose out.

Small businesses will be left vulnerable to surges in wholesale prices

Lee Murphy MAAT, managing director, The Accountancy Partnership

While support from the government in any form is positive, it is very much slimmed down from the previous scheme. Small businesses will be left vulnerable to surges in wholesale energy prices, which are out of their control. An unexpected hike in prices due to global factors such as poor weather conditions, currency fluctuations or supply shortages could put an SME out of business with little notice.

The increasing cost of overheads cannot be passed on to customers, who are already price sensitive and are tightening purse strings.

The government should consider tying to limit other factors such as inflation, to provide relief in other areas. An increase in the business rates relief cap would be very welcome for retail and leisure businesses who are under most pressure. Multiple streams of support would also prevent a ‘cliff edge’ when one scheme stops, giving small businesses more time to adjust.

Verdict: This scheme will leave small businesses vulnerable to surges in wholesale prices. To avoid a cliff edge, the government needs to increase support in other areas.

The scheme prioritises certain sectors at the expense of others

Ercan Demiralay, partner, Wellers

Wholesale energy prices are falling and prices are now below what they were before Russia’s invasion of Ukraine. That’s why the government is limiting support.

The new scheme offers greater discounts to high energy use businesses, such as steelmakers and manufacturing. It’s weighted towards those locked into fixed-term contracts at high prices. Trade and energy-intensive businesses are eligible for a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.

The businesses most likely to benefit are those already locked into fixed-rate contracts at high prices and those in energy-intensive industries. However, smaller businesses are likely to lose out, as are less energy-intensive businesses, with the government prioritising help for manufacturing sectors in particular.

Verdict: The scheme benefits those already locked into fixed-rate contracts at high prices and those in manufacturing, but industries outside of this and smaller businesses too will lose out.

Annie Makoff is a freelance journalist and editor.

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