Six-month emergency support package for small businesses announced

Energy costs for small businesses will be capped at “less than half” anticipated winter levels, the government has announced.

Under the new Energy Bill Relief Scheme, the government will subsidise costs for non-domestic energy usage with a new ‘Supported Wholesale Price’ over the next six months.

The package follows months of campaigning from small business leaders for greater support to tackle rising inflation, with wholesale gas and electricity prices set to skyrocket in October.

It will come as a welcome relief to UK business owners, many of whom have reported astonishing rises in quoted energy bills, contributing to fears that thousands would collapse this winter.

Below, we’ll go through all the ‘need-to-knows’ about the scheme, including eligibility criteria and how to get the discount.

What is the Energy Bill Relief Scheme?

The government’s new Energy Bill Relief Scheme is an attempt to prevent thousands of firms being forced to file for bankruptcy this winter as a result of increasing energy bills.

Ofgem, the energy regulator, announced a new energy price cap for October which limits the typical household bill. However, the cap does not apply to businesses, forcing companies to contend with much steeper costs than domestic users.

But while the government announced a cost of living support package exclusively for households back in May, so far no additional help has been given to the UK’s 5.6 million businesses. As a result, SME owners have told us they felt ‘ignored’.

Data from the Federation of Small Businesses (FSB) shows small firms have, on average, experienced a 349% increase in electricity prices since February 2021. Startups recently spoke to one business owner who told us that hiked energy costs had led him to feel “really worried for my customers and my team”.

The new ‘supported wholesale price’ is expected to cut energy bills by limiting prices to £211 per MWh for electricity and £75 per MWh for gas.

That means electricity prices for business customers will be about double what they were in October 2021. But business bills will still be reduced by more than half the forecast winter price of approximately £540 per MWh.

All non-domestic energy usage from 1 October 2022 to 31 March 2023 will be covered by the scheme. The government will publish a review of the scheme in three months time to decide on any future support.

How will the package be funded?

Few details have been given about how the Energy Bill Relief scheme will be financed. In total, the scheme is estimated to cost £125bn and will likely be paid for by the taxpayer.

To help reduce bills further, the government has also announced the removal of green levies, a policy supported by the new prime minister Liz Truss.

Green levies are essentially a tax on using non-renewable energy sources and currently make up around 8% of energy bills. The policies that green levies fund will instead also be paid for through general taxation.

Do I qualify for the Energy Bill Relief Scheme?

According to a Department of Business, Energy, and Industry (BEIS) press release, the discount will apply to all fixed contracts agreed on or after 1 April 2022, as well as those signing new fixed-price contracts in October.

Using government data, energy providers will calculate the cost for those on a fixed-price contract and offer a discount based on the difference between the supported price and the relevant wholesale price.

SMEs on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the supported price and the average expected wholesale price over the period of the scheme.

Based on the new supported price, the maximum discount is likely to be about £405 a MWh for electricity and £115 a MWh for gas (although this number may change depending on market conditions).

For businesses on flexible purchase contracts (which tend to have the highest level of energy usage) the level of reduction offered will depend on the specifics of the company’s contract.

In a recent survey by technology company Babble, when asked what support they’d like to see the Government provide to UK SMEs, over 67% of respondents requested a cap on business energy bills.

What about Northern Ireland?

Currently, the government has only announced help for small firms in England, Scotland, and Wales.

However, a parallel scheme, based on the same criteria and offering comparable support, will also be established in Northern Ireland.

How do I get the discount?

According to the BEIS announcement, eligible businesses will not need to apply for the discount themselves.

Provided that the wholesale element of the price the customer is paying is above the new Government Supported Price, per unit energy costs will automatically be deducted from business energy bills for the duration of the scheme.

The savings will apply to October bills, which are typically received in November.

Has your business been affected by rising energy bills? Let us know what you think of the Energy Bill Relief scheme by emailing hello@startups.co.uk.