ICAEW.com works better with JavaScript enabled.

Six-month energy support for businesses – but clarity needed

Author: ICAEW Insights

Published: 08 Sep 2022

Businesses have been promised “equivalent support” to the domestic energy price cap of £2,500 a year, but no detail is expected on the plan until the Chancellor’s fiscal statement later this month.

Businesses have been promised six months of energy bill support as part of Prime Minister Liz Truss’s package of measures to combat the energy crisis. However, no details have been announced about what this will actually look like. 

The Prime Minister also announced that vulnerable business sectors will be offered further support beyond that initial six-month period, following a three-month consultation on where support measures should be focused. Within the initial six-month period, businesses would be provided with “equivalent support” to domestic energy users, the Prime Minister said. This is expected to be an intervention to subsidise the wholesale price of gas.

For domestic energy bills, prices will be capped at £2,500 a year for two years. This is paired with the existing £400 rebate available to all households. The green levy is also being temporarily suspended.

“The Prime Minister’s energy plan is welcome news for households across the country and should significantly reduce the threat of widespread fuel poverty this winter,” Iain Wright, Managing Director, Reputation and Influence, ICAEW, says. “However, businesses will need to know soon what happens when the support offered to them by the government ends in six months. Otherwise, they face a cliff edge, which can only mean price increases and real threats of company failures – feeding inflation, harming the economy and hurting consumers.

This should result in a peak to the headline inflation rate, which might not be enough to prevent a recession, but could reduce its length and depth. 

Simon Gray, ICAEW’s Head of Business, says that support for business is welcome, it raises questions over funding and the impact on inflation. 

“While inflation can be expected to fall in the short-term, there is no guarantee longer-term. How the often-opposing forces of fiscal and monetary policy play out is yet to be determined. The thrust of the intervention is on supply but the long-term solution also requires initiatives to reduce energy demand.”

Questions also remain about the cost of these measures and how they will be funded. It is expected that the government will rely on borrowing to pay for the plan, meaning that the cost will be passed on to taxpayers at a later date. 

“Markets will be keen to learn what this means for a credible tax and spend plan, otherwise confidence in the UK internationally diminishes and the cost of selling gilts for the government on the international market increases, causing further strain on public finances,” says Wright.

Securing energy supplies

The government’s longer-term plans for securing energy supplies include creating an energy supply taskforce led by Medelaine McTernan to negotiate long-term contracts with energy suppliers. A joint scheme between HM Treasury and the Bank of England – the Energy Markets Financing Scheme – will address the liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets, including short term financial support.

The government also announced the launch of a new oil and gas licensing round expected to lead to more than 100 new licences to explore the North Sea for oil and gas reserves. The moratorium on shale gas production has also been lifted. Nuclear and renewable supplies will also be accelerated. A review into the UK’s 2050 net-zero target to ensure its economic efficiency will also go ahead, chaired by Chris Skidmore MP.

Richard Spencer, ICAEW’s Director, Sustainability, says that it is positive that the government is not going to abandon renewable energy. “It’s also good to see Chris Skidmore of the Net Zero Support Group leading on it, which demonstrates it is being taken seriously. 

“It is sad, however, to see the return of fracking – it won’t ease prices in the short term, and it won’t bring down British bills. And we don’t want more gas in the long term. With that considered, fracking is a bit of an unfortunate distraction, likely to be deeply unpopular at a local level. More North Sea oil and more fracking will exacerbate the climate emergency without delivering any benefits.”

ICAEW would have liked to see a focus on reducing wasted energy by insulating homes and pushing out tried and tested renewables, he says. “This would have been a more cost-effective measure to secure energy in the longer term.”

 

Latest on the energy crisis

Recommended content

Insights special
Gas-fired power station and factory building at night.
Energy crisis

A look at how supply difficulties, rising electricity prices and sanctions against Russia are contributing to turmoil in energy markets and look at what businesses can do to lessen the impact.

Read more
ICAEW Community
Wind turbines depicted on a postage stamp.
Energy & Natural Resources

Tailored content and networking opportunities for accounting and finance professionals in the energy sector, to help you stay up to date with the latest news and developments in your industry.

Find out more
Trusted business advice
Logo of ICAEW's Business Advice Service
ICAEW Business Advice Service

The Business Advice Service connects owners of SMEs with ICAEW regulated firms who will provide a free initial consultation, without obligation.

Find out more