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Wed 21st Sep 2022 - Sector welcomes ‘unprecedented’ intervention to cap energy bills but warns further support must be forthcoming
Sector welcomes ‘unprecedented’ intervention to cap energy bills but warns further support must be forthcoming in mini-Budget: Sector leaders have welcomed the “unprecedented” intervention by government to cap energy bills for businesses but warned further support must be forthcoming in Friday’s (23 September) mini-Budget to ensure there is no cliff-edge when the scheme is removed. The support scheme will cap the wholesale costs that energy suppliers can incorporate into businesses’ bills, but will not determine the final rate paid by corporate customers. Under the government’s plan, energy suppliers will be allowed to incorporate a capped wholesale price of 21.1p per kilowatt-hour for electricity and 7.5p per kilowatt-hour for gas when calculating rates for corporate customers. It will apply to all energy contracts signed with suppliers since 1 April and will last for six months from 1 October. It will be reviewed in three months’ time, and the review will form the outline for further support that will then be given to “vulnerable” businesses. Prime minister Liz Truss specifically named pubs among those businesses. A pub that uses four megawatts per hour of electricity and 16 megawatts per hour of gas a month that signed a fixed contract in August 2022 would have a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next six months were expected to be higher than the government supported price, meaning they can receive support under this scheme. The difference between expected wholesale prices when they signed their contract and the government supported price is worth £380 per megawatt hour for electricity and £100 per megawatt hour for gas, meaning they receive a discount of £3,100 per month, reducing their bill by more than 40%. A medium sized restaurant that uses around 3.5 megawatts per hour of electricity and four megawatts per hour of gas each month that is on a variable contract would give them a current monthly energy bill of around £3,900 per month. As they are on a variable contract they can receive support up to the maximum discount (currently estimated to be £405 per megawatt hour for electricity and £115 per megawatt hour for gas. Applying the maximum discount rates means their monthly energy bill reduces by around half. 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 that would allow a degree of competition to remain in the market. The government said businesses do not need to contact suppliers as this will be automatically applied to them. UKHospitality chief executive Kate Nicholls said: “We are relieved that the government has listened to the representations that UKHospitality has stridently delivered, relating to the problems that the sector is experiencing with energy suppliers. This intervention is unprecedented and extremely appreciated as we head into an uncertain winter with numerous challenges on many fronts. The inclusiveness of the supports announced today – covering businesses small and large – will be extremely beneficial to the sector. A sector that provides a huge number of jobs, many of which are now more secure. The government – and the prime minister herself, in her comments in New York – has singled out the vulnerability that energy costs are inflicting on the hospitality sector. Today’s announcement will give businesses some confidence to plan for immediate survival but we will not relent in our pursuit of a more comprehensive package to safeguard businesses and jobs. The levers of reduced VAT and business rates reliefs are still available to the government, and there must also be a comprehensive package to ensure that there is no cliff edge when these measures fall away.” Emma McClarkin, chief executive of the British Beer & Pub Association, added: “We welcome this very significant and critical intervention by the government. It will be a lifeline for many pubs and brewers this winter. It is crucial that business owners can easily understand what discount they will be receiving so they can effectively plan ahead, and the requirement for security deposits to enter new contracts must be removed as a barrier to fair supply. While this announcement has helped businesses to breathe an initial sigh of relief as they head into this critical period, more support is needed to tackle the cost of doing business and we need a plan beyond the next six months. On Friday, the chancellor must take steps to address the cost of doing business, by reducing the tax burden on our sector, allowing pubs and brewers the chance to not only survive this winter, but remain at the heart of local economies and their communities for many years to come.” Michael Kill, chief executive of the Night Time Industries Association, said: “We welcome the detail of the long-awaited announcement. However we remain concerned that this measure to cap the wholesale price to energy supply companies may not result in sufficient relief being extended to business customers, given that energy suppliers remain free to impose additional mark-ups such as network charges and operating costs, which are uncapped. The net result of this could be a position where small businesses are still being asked to pay unaffordable energy bills of several hundred percent more than in previous years, which is clearly not sustainable. While we acknowledge that it will take some time for details and final pricing to businesses to become clearer, we also note this proposal will exclude businesses that renewed before 1 April where energy costs were still untenable, and does nothing to alleviate the high levels of energy supply debt incurred by businesses exposed to uncapped pricing over the last few quarters, and in isolation is unlikely to be enough to ensure businesses have the financial headroom to survive this winter. If we are to ensure the survival of our sector it remains imperative that the short term relief announced today is extended to 12 months and followed up with further action by the government in the budget this Friday, and that such action must incorporate our core asks, specifically business rates relief and a reduction in VAT across the board. We will now have to wait for the announcement on Friday from the chancellor on further support, however, we must note that the measures being discussed to date such as corporation tax relief will simply not be sufficient, given only one in four hospitality businesses would currently benefit from such measures, as three out of four are not trading profitably.” Andrew Crook, president of the National Federation of Fish Friers, added: “This is about more than energy it’s about the future of independent hospitality businesses! Energy has been dominating the headlines and quite rightly the government has extended support for consumers for their energy bills, and the support for businesses will take pressure off some businesses short term and is very welcomed but we would like to have seen some limits on standing charges too. For the fish and chip industry this was never just about energy, post pandemic inflation and the effects of the conflict had already put our businesses in jeopardy and the effects of the tariff imposed by the UK government on Russian white fish have started to take effect on the already hugely inflated prices and could soon affect supply. While we do have some unique pressures due to the nature of the products we use it strikes me that all independent hospitality businesses are currently vulnerable while the large chains seem to be expanding, we are fighting for our lives! This current financial crisis is only going to be solved by us working and growing out of it but as a business owner we need to see that the dark times we have ahead will lead to a brighter future otherwise why would we bother? Now is the time to ensure the trading environment is such that we have a level playing field and that hardworking business owners who operate to the letter of the law, that treat their employees well and invest in their businesses have the best chance of survival and future prosperity. We need to know that government believe in us, are listening to us and are supporting us to do what we do best, running our businesses and contributing to the economy whilst serving our local communities. The fiscal announcement due on Friday is make or break for many businesses but failure to look at long term reform of the system will lead to an exodus of good operators even if they survive the immediate crisis.” The retail cap announced by ministers this month for household energy bills was set at 34p per kilowatt-hour for electricity and 10.3p per kilowatt-hour for gas. This month, Truss 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. 

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