After the announcement of the Energy Bill Relief Scheme in September, businesses have been asking what support will remain when it comes to an end on 31 March. The current Chancellor, Jeremy Hunt, pledged during his Fiscal Statement in November that the government would announce measures to continue support for businesses that need it the most.
The government set out that scheme in Parliament on the afternoon of 9 January. The Energy Bills Discount Scheme (EBDS) will come into force from 1 April 2023 and will last until 31 March 2024, and will automatically apply a unit discount of up to £6.97/MWh for gas and up to £19.61/MWh for electricity for all eligible non-domestic customers.
Who is eligible?
Eligibility for EBDS follows the original criteria for the previous scheme. It is available for anyone on a non-domestic contract. This includes:
- voluntary sector organisations, such as charities
- public sector organisations such as schools, hospitals and care homes
Regarding the energy contract criteria, businesses and organisations must either be:
- on existing fixed price contracts that were agreed on or after 1 December 2021;
- signing new fixed price contracts;
- on deemed/out of contract or standard variable tariffs;
- on flexible purchase or similar contracts; or
- on variable ‘Day Ahead Index’ (DAI) tariffs (Northern Ireland scheme only).
How does it compare with the previous scheme?
The unit discount of £6,97/MWh for gas and £19.61/MWh for electricity is subject to a wholesale price threshold of £107/MWh and £302/MWh for gas and electricity respectively. Businesses with energy costs below that level will receive no support.
This will take some businesses and organisations out of scope for support where they were previously receiving it. Under the Energy Bill Relief Scheme, the government supported price was set at £211/MWh for electricity and £75/MWh for gas.
Energy and Trade Intensive Industries
Eligible Energy and Trade Intensive Industries (ETII) will receive further support. They will receive a discount reflecting the difference between a price threshold of £99/MWh for gas and £185/MWh for electricity and the relevant wholesale price.
The discount will apply to 70% of energy volumes and will be subject to a maximum discount of £40/MWh gas and £89.1/MWh for electricity. Eligible industries include certain manufacturing sectors, agricultural processing such as dairies, meat and fish processing and industrial baking, textile making, libraries, museums, and biological or zoological gardens and nature reserves. See the full list of eligible industries.
Views on the scheme
The announcement of EBDS has provided some welcome certainty for businesses, charities and public sector organisations. However, the significant drop in support after just three months has raised some concerns over how some businesses will cope.
“The government must be prepared to be flexible if businesses and organisations need more help with their energy bills, and more importantly must invest to boost energy efficiency, limiting future energy shocks and reducing the cost to the taxpayer,” says Iain Wright, Managing Director, Reputation and Influence, ICAEW. “The past 10 months have shown the political, financial and environmental importance of investing in the UK’s transition to net zero now, and it’s vital this is a priority for government.”
There were also some concerns before the launch of EBDS that public sector services would not continue to receive support. With essential services under pressure, their inclusion in EBDS is welcome, says Oliver Simms, ICAEW’s Manager, Public Sector Audit and Assurance. “The news that there will be some protection from energy price rises will be a substantial relief to those running essential public services, such as hospitals and courts, that already face significant pressures including worsening backlogs and industrial action over staff pay.”
The cut in funding for the support scheme from £18bn for the six-month scheme to £5.5bn for EBDS reflects the radical change in fiscal policy as borrowing costs have risen, says Martin Wheatcroft FCA, external advisor on public finances to ICAEW. “The era of ‘free money’ that saw extremely generous levels of support provided to individuals and businesses during the pandemic is decidedly over, replaced by a mission to stabilise the public finances and constrain the rise in public debt that is currently on course to reach £3trn within the next five years.”
The relatively untargeted nature of EBDS highlights continuing government struggles with inadequate data, limiting its ability to focus support on those businesses most at risk, Wheatcroft adds.
“Plans to improve the resilience of the public finances to future economic crises need to consider not only how the public balance sheet can be strengthened, but also how well prepared the government machine is for the next emergency.”
Latest on the energy crisis
A look at how supply difficulties, rising electricity prices and sanctions against Russia are contributing to turmoil in energy markets and an examination of what businesses can do to lessen the impact.Read more
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
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