Government support scheme must target heavy energy users

• Firms expect their energy costs to more than double once scheme ends in March
• CBI urges clarity on future support before end of year, with focus on high energy users, SMEs and incentives to boost energy efficiency
• High energy users - beyond strict definition of Energy Intensive Industries - will still require support

The CBI is today (Thursday) urging the Government to extend the Energy Bill Relief Scheme for significant energy users beyond the end of March 2023 and provide additional cashflow support for vulnerable businesses, especially SMEs.

Since September, the Energy Bill Relief Scheme has been crucial in shielding business from rising wholesale gas and electricity costs after Russia’s invasion of Ukraine. The scheme has protected firms from major financial losses and saved many from collapse. The Government has committed to providing some support from April onwards, but firms need to know if they will or won’t qualify before the end of the year, helping them to plan ahead.

While wholesale gas and electricity prices have fallen back from their previous spikes, they are expected to remain historically high in the coming year – a CBI survey of nearly 700 businesses shows that firms expect their energy costs to more than double (151%) if government support were no longer available from April 2023 (and once any fixed price contracts expire).

The CBI believes that the most vulnerable businesses, especially SMEs, still need to be protected from April 2023 onwards. It identifies several policy options the Government should explore to help businesses overcome the rising energy costs in the short to medium term:

1. Direct support to help vulnerable firms pay their energy bills

That means targeting the Energy Bill Relief Scheme to significant energy users that are most exposed to higher energy costs. Importantly the scheme should also go beyond the definition of energy-intensive industries to include other industries such as automotive and food and drink manufacturers, for example. The Government should also make grant funding available to SMEs through local authorities, enabling local leaders to manage risks to businesses in strategically important sectors or locations.

2. Provide additional cashflow support to enable companies to adjust to the high-cost energy environment 

For instance, the Government should instruct HMRC to replicate ‘time to pay’ flexibilities granted during the pandemic to take account of energy price rises alongside publicising that the Recovery Loan Scheme remains available and open to applications.

3. Use policy to drive a step change in business energy investments to improve the security and resilience of the system. 

For businesses investing in energy efficiency, or making any ‘green’ capital investment, capital allowances should be increased to 120% of the investment value. Businesses want to see the Industrial Energy Transformation Fund expanded and extended, and for the Government to launch a Help to Green voucher scheme for small and micro businesses - to spend on things like energy efficiency or solar panels.

The survey shows that two-thirds of firms (67%) would be exposed to an increase in energy bills when the Energy Bill Relief Scheme expires at the of March, rising to three quarters (74%) by the end of June next year.

While businesses are looking at how they can overcome rising energy costs post-April 2023, a number of firms will have to reduce staff, cut back on capital investment and in some cases pass on increased energy costs to their customers.

Matthew Fell, CBI Chief Policy Director, said: 

“The high cost of energy is dominating the decisions that businesses are making each and every day. There are no easy answers in all this, but the Government will have to keep supporting the most vulnerable firms to help them stay competitive, to build resilience and in some cases to avoid collapse. On average, firms expect their bills to more than double next April.

“The Energy Bill Relief Scheme has been crucial in cushioning firms from spiralling energy costs. The CBI understands and supports the Government’s decision to target the scheme from April 2023 onwards. The cost is simply too great to continue indefinitely, and the need is not evenly distributed among all businesses. Any extension must be aimed at firms that use the most energy, just as many of our European counterparts have already committed to doing. And businesses need to know before the year is out if they qualify or not.

“We must also take heed of the lessons from the pandemic, where providing additional cashflow support, especially to SMEs, was critical to seeing businesses through this period. Allowing businesses to defer energy bills if needed and providing grant funding through local authorities can play key roles in 2023.

“Government support has been considerable already, but with the UK falling into recession, we must ensure any downturn is short and shallow so extending targeted support must be on the cards.”