Hot Topic

A review of the issues.

Rising energy costs

Inflation and the cost of living remain key concerns for businesses, families and the government. Central to these concerns is the cost of energy with gas and electric bills being driven higher by the war in Ukraine. Meanwhile, the big oil companies are reporting huge profits, which is prompting further debate about the efficacy of a windfall tax. Here, we look at some of the energy costs facing businesses and consumers as well as the government’s strategy for the sector.

The price cap

Energy regulator Ofcom lifted the price cap on bills in April, sending the average household dual-fuel tariff from £1,278 to £1,971. That is due to increase again in October, with some experts expecting the price cap to hit £2,600.

Chancellor Rishi Sunak attempted to soften the blow via council tax rebates and help with bills. The plans will mean a £200 discount on energy bills for households from October, which will be paid back over next five years at £40 per year starting in April 2023.

In England, households in council tax bands A to D received a £150 discount from April. Funds for the equivalent discounts will be provided to devolved nations in the UK.

However, this aid ahs been criticised as insufficient to counter the scale of the increases while the price cap does not apply to business customers.

Unprecedented measures

Bosses of the UK's largest energy firms have called on the government to intervene with 'unprecedented' measures to prevent a fuel poverty crisis next winter.

The chief executives told MPs investigating energy prices that while pre-payment customers were already reeling from the effects of rising bills, they expected the numbers in financial distress to only increase from October.

Energy-intensive firms

Furthermore, the government now says that businesses that use high levels of energy are to get more support from the government for electricity costs.

Ministers said an Energy Intensive Industries Compensation Scheme will be extended for a further three years and its budget will be more than doubled.

The scheme provides businesses with relief for the costs of the UK Emissions Trading Scheme and Carbon Price Support mechanism in their electricity bills and will now offer support for companies that manufacture batteries for electric vehicles.

The government said the extended support would be on top of the £2 billion it has already provided since 2013 to support such businesses with the price of electricity bills.

It will also consider other measures to help businesses, including increasing the renewable obligation exemption to 100%.

UK Energy Strategy

Looking to the long-term, the government recently unveiled its new Energy Strategy, which aims to boost UK energy independence and tackle rising prices. Under the government's new plan, up to 95% of the UK's electricity could come from low-carbon sources.

Business groups' reactions to the Strategy

Business groups, including the Confederation of British Industry (CBI), the British Chambers of Commerce (BCC) and the Trades Union Congress (TUC) reacted to the publication of the Energy Strategy.

The CBI stated that the Strategy 'sets an ambitious bar for a more resilient, low carbon energy system for the future'. Rain Newton-Smith, Chief Economist at the CBI, said: 'Bold words must now be matched by bold actions from the government. The proof will be in the Strategy's delivery, in partnership between business and government. Business believes greater energy independence must go hand in hand with delivering a net-zero, higher growth economy.'

Missed opportunity

The BCC labelled the Strategy as a 'missed opportunity'. Alex Veitch, Director of Policy and Public Affairs at the BCC, said: 'The transition to the cheaper, cleaner energy sources of tomorrow is vital, however prices are soaring today, and businesses need support now. This strategy is a missed opportunity to provide that which is why we are urging the government to introduce a temporary SME price cap, expansion of the energy bills rebate scheme to include SMEs and a six-month extension to the Recovery Loan Scheme.'

The TUC said that the Strategy 'fails to rise to the challenge of the climate emergency'. Frances O'Grady, General Secretary of the TUC, said: 'It does little to reassure the millions of workers facing big falls in their living standards due to soaring energy costs.

'A mass home insulation programme would slash bills and create over 200,000 jobs. But it is entirely missing from the strategy.'

The Energy Strategy can be found in full here.

Rising costs and cashflow

Rising energy costs will hit both households and businesses this year, if you need advice on improving your cashflow please contact us.

What some of our clients say...


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