On Monday 9th January in the House of Commons, the government announced new measures regarding business’ energy bills. Under the new scheme, businesses will receive a discount on wholesale prices as opposed to costs being capped. The government have introduced the Energy Bills Discount Scheme (EBDS) after warning the current level of help was too expensive.
Energy intensive businesses, such as mechanics or factories for example, will receive a larger discount than others. Businesses will only benefit from the new scheme when energy bills are high. The energy support scheme is mostly used by businesses, however charities and public sector organisations, such as schools and hospitals, are also eligible. The new Energy Bills Discount Scheme will now run until the end of March 2024. A limit has been set on the scheme aiming to reduce how much taxpayers will be subject to rising costs.
We break down the ins and outs of the EBDS, and whether or not it’s an improvement for businesses…
What Is The Energy Bills Discount Scheme?
The Energy Bills Discount Scheme is set to replace the Energy Bill Relief Scheme (EBRS), introduced back in September 2022. The EBRS will expire as of March 2023, where it will be replaced by the EBDS. The new level of support will apply from 1st April 2023 to 31st March 2024. All eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill. A unit discount of up to £19.61/MWh will also be applied, except for those benefitting from lower energy prices.
A substantially higher level of support will be provided to businesses in sectors identified as energy and trade intensive. These are most commonly manufacturing businesses such as factories or mechanics. A long-standing category associated with higher energy usage; these firms are often less able to pass over costs to customers due to international competition. Businesses in scope will receive a gas and electricity bill discount based on a supported price. This will be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.
It’s worth noting that the discount won’t apply for everyone and will be subject to a wholesale price threshold. This is set with reference to the support provided for domestic consumers, of £107/MWh for gas and £302/MWh for electricity. This means that businesses experiencing energy costs below this level will not receive support.
Is The New Energy Scheme Better Than The Previous One?
Much has been made of the announcement of the Energy Bills Discount Scheme. Questions were raised immediately about whether or not it’s actually better than the previous model. The government stated it was scaling back the energy subsidies for the next financial year to £5.5bn, an 85% decrease. The current scheme was labelled as ‘unsustainably expensive’ by the Chancellor, Jeremy Hunt. Over six months, It was estimated to have cost roughly £18.4bn.
The Chancellor said, “My top priority is tackling the rising cost of living, something that both families and businesses are struggling with. That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able. Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to OFGEM asking for an update on whether further action is action is needed to make sure the market is working for businesses.”
Many governing bodies were quick to comment on the EBDS. These were largely toned with disappointment and fear that it will deepen the problem for many businesses. The British Chamber of Commerce released a press statement claiming, ‘Many businesses have been fighting for their survival for months, and rising energy costs have fast become the tipping point. While we welcome the 12-month duration of this package, its value is nowhere near far enough and means that for some firms, energy will now be a cost too far.’
The Federation of Small Businesses (FSB) held a similar standpoint. Martin McTague, National Chair of the FSB, said, “This is so out of touch. Two pence off a kWh of electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer. The government will inevitably have to come back. The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither.”
We hope this has outlined to you the new Energy Bills Discount Scheme. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.