UK businesses to benefit from price cap on energy bills

UK businesses will be protected from soaring energy bills under an emergency government scheme that ministers hope will prevent a wave of corporate collapses.

The support scheme — to be set out on Wednesday by the government — will cap the wholesale costs that energy suppliers can incorporate into businesses’ bills, but will not determine the final rate paid by corporate customers.

Prime minister Liz Truss this month announced a huge energy support package costing about £150bn under which the government pledged to help UK households and companies with surging gas and electricity bills.

Truss at the time announced that domestic energy bills would be capped at about £2,500 per annum for the typical household over the next two years.

But the details of the business scheme were delayed because of challenges in devising it and the complexity of corporate tariffs.

Truss told ITV News on Tuesday the scheme “will make sure that businesses are protected from those very high prices that were being predicted”.

Under the government plan, energy suppliers will be allowed to incorporate a capped wholesale price of 21.1p per kilowatt-hour for electricity and 7.5p/kWh for gas when calculating rates for corporate customers.

It will apply to all energy contracts signed with suppliers since April 1 and will last for six months from October 1, according to government insiders.

But the capped wholesale prices will not be the final rates that businesses pay as there will be other charges on top — in a move the insiders said would allow a degree of competition to remain in the market.

The retail cap announced by ministers this month for household energy bills was set at 34p/kWh for electricity and 10.3p/kWh for gas.

Providing government support for households with their gas and electricity bills has been relatively straightforward because there is an existing retail price cap which dictates the amount paid by the majority of households.

Truss said this month businesses would receive “equivalent” government support to families, albeit for six months rather than two years.

Energy suppliers were locked in talks with government officials on Tuesday about the precise mechanism by which they will implement the plan for businesses.

“It’s a systems issue,” said one person briefed on the talks. The plan will also require legislation.

Energy suppliers fear they will be unable to get the government support delivered to their corporate customers until November, meaning bills under the support scheme will need to be backdated to October 1.

Businesses typically have bespoke contracts with their energy suppliers and agreements can vary greatly by industry.

Many businesses on fixed term deals have to renegotiate their agreements in time for October 1: traditionally a key anniversary for contracts in the corporate market.

Analysts at Cornwall Insight have cautioned that businesses with contracts that expire in October could face a fivefold increase in their energy bills.

After the six months of government help for companies with their energy bills ends, ministers will focus support on “vulnerable” but as yet undefined industries.

Truss said on Tuesday that business secretary Jacob Rees-Mogg was conducting a review to determine which industries would receive support, but suggested pubs would be helped.

Chancellor Kwasi Kwarteng will provide further details on the fiscal implications of the government’s energy market intervention when he delivers his mini-Budget on Friday.