After freezing energy bills for households, the British government said it would “stop businesses collapsing” by limiting an expected rise in the price of electricity and natural gas.
The British government announced details of a plan on Wednesday to cut energy costs for companies over the winter, after industry groups warned that soaring bills were threatening the survival of countless businesses.
Beginning in October and lasting for six months, businesses, charities and other public-sector organizations, including schools and hospitals, will see the wholesale price per unit they pay for energy set at 211 pounds (about $240) per megawatt-hour of electricity and £75 for natural gas. The government said this was less than half the wholesale prices anticipated for winter. It will revert prices back to where they were in the spring, according to Cornwall Insight, an energy research and consulting company, which said the reduction to energy costs for businesses would be “substantial.”
Energy prices have soared across Europe as Russia has restricted the flow of natural gas to the region and countries have scrambled to find alternative sources of energy. While wholesale gas prices, which have a large influence on electricity costs, have dropped from recent record highs, they are still much higher than in recent winters. Households and businesses in Britain, even with the caps, are still confronting higher-than-usual energy costs, which have contributed to rising prices for other goods and services, squeezing budgets.
The business-focused plan accompanies a sweeping initiative to freeze household energy bills for the next two winters. These expansive policies have been announced without official estimates of how much they will cost. Economists predict that the household bill freeze could cost £150 billion. But since the plans depend on volatile wholesale market prices for energy and a wide range of business contracts, the eventual bill is uncertain. Economists are expecting a large increase in government borrowing to fund the policies.
Martin Young, an analyst at Investec, estimated that the cost for the business policy could range between £22 billion and £48 billion. Cornwall Insight said the cost to the government could be £25 billion.
The new government, under Prime Minister Liz Truss, has just begun its work in earnest after a national mourning period for Queen Elizabeth II. Ms. Truss announced the plan to limit household bills on Sept. 8, promising “equivalent support” for businesses. Hours later, the queen died, putting much of government activity on hold.
Now, the weight of the economic and social crises facing Britain has returned to the fore, with consumers contending with the fastest increase in inflation for 40 years and the specter of recession looming over the economy. Ms. Truss and her chancellor of the Exchequer, Kwasi Kwarteng, have committed to boosting economic growth quickly. They have argued that tax cuts will do this, and some of these cuts are expected to be announced this week. With big spending and tax cutting prominent on the agenda, there are signs that the government’s fiscal plans aren’t sitting well with investors.
“We have stepped in to stop businesses collapsing, protect jobs and limit inflation,” Mr. Kwarteng said in a statement on Wednesday.
Sean Hughes, who runs two pubs in St. Albans, north of London, said he was “very encouraged” by the cap on wholesale prices but was still waiting to find out what overall rate his energy supplier would offer and what might happen after the initial six-month period.
His energy bills are set to increase in November when his current fixed-term contract expires. He estimates that the bill will now increase by a third, to £30,000 for one pub over a year. He had previously received a quote that indicated he would need to pay £100,000 more for electricity and gas.
Before the cap, “it would have been an impossible price rise to swallow,” Mr. Hughes said. Although the smaller rise “is not an ideal amount to just accept, it is manageable,” he added.
The discount that companies receivewill vary depending on the type of contract a business has signed — for example, variable or fixed — and when they agreed it. There will be maximum discounts applied to variable tariff contracts. The government also said it intended to review the subsidy in three months and identify the most vulnerable businesses that it would keep supporting after six months.
“This support package is significant and will ease the cost pressures that have been piling up on businesses,” Shevaun Haviland, the director general of the British Chambers of Commerce, said in a statement. She added that support for six months wouldn’t be long enough to encourage businesses to make investment plans.
“There are a range of other challenges that must be addressed, including labor shortages, supply chain disruption and rising raw material costs.” Ms. Haviland added.