Trade bodies and analysts are warning that British businesses are on the brink of an energy-cost cliff edge in April when a less generous government support package takes effect, causing bills to soar.
The current government support scheme, which started in October and runs until the end of March, has shielded companies from the elevated energy costs this winter.
However, the replacement scheme, which will run until April 2024, is significantly less generous. While wholesale gas prices have fallen this week and are down by about half since late October, they remain roughly three times their level before the start of the pandemic, leaving energy costs elevated and many companies exposed.
Cornwall Insight, an energy consultancy, has warned of a precarious cliff edge when the business support scheme ends, with some businesses facing a 70-80% increase in their power and gas bills. The Energy Intensive Users Group, which includes steel, chemical, and ceramics manufacturers, has also cautioned that the steep drop in government support could put some of its manufacturers at an increasing competitive disadvantage compared to some other European countries.
According to the director of the Energy Intensive Users Group, UK industrial electricity prices were already higher than those of other countries even before they rose in 2022, due to higher network charges and the significant role of gas-fired power stations in the country’s electricity generation mix. Geveke added that Germany, France, and Italy have recently extended and increased support for energy-intensive users as a result of the war in Ukraine, while energy prices in the US remain much lower than in Europe.
The EIUG cautioned that despite the relief the UK government has proposed to provide from April, UK energy-intensive users will still be at a competitive disadvantage internationally. The extent of price rises will depend on the individual contracts signed, but the reduction in government support will impact businesses that locked-in rates at the peak of the market in August of last year.
Emma McClarkin, CEO of the British Beer and Pub Association, identified energy costs as the biggest threat to the industry, and expressed concern about the impending drop-off in support in April, with business owners unsure of what the next 12 months will bring. McClarkin urged the government to hold suppliers accountable for passing on drops in wholesale energy prices.
According to Cornwall Insight, a firm that collaborates with businesses’ energy suppliers, most companies have been able to pay their bills so far, but there are worries that there will be a surge in bad debt once the support scheme comes to an end.
