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Employment

Energy Crisis

Energy crisis

Thursday, September 8, 2022

We look at the Government response to the energy crisis and available options for businesses faced with tackling an exponential increase in costs without a support package.

One topic has topped the weather as an opener in conversations over the past few months, the cost of energy.  It started with fuel prices rising to eyewatering levels exceeding £2 a litre.  This has been followed by Ofgem announcements of significant uplifts in the capped figure for domestic users.

In our July update we ran an article covering the economic outlook and at that time the expected rise in Ofgem cap for Q4, from October, was to be a 51% increase to £2908.  As we now know that was a considerable underestimate and the October rise to take us to the end of the year is planned to be £3,549 up from Q3’s cap of £1971 an 80% uplift. It’s also predicted to rise again from January 2023 to £5,390 April 2023 up again to £6,620 and dropping to £5,900 in July. [predictions via Cornwall Insights]

This is scary data for consumers but when you consider there’s no such cap protection for business users the pain for many will be too great to bear.

Social media is fast filling up with images of annual bill figures for café’s restaurants, pubs, manufacturers, office users, and many other businesses large and small.  One bistro owner based in Beverley near Hull posted an estimated annual bill for his 22-cover restaurant, the Pig & Whistle. Whereas he’d been paying £2,900 a year his bill is set to rise to an eyewatering £22,516.  Mr Alcock the owner of the bistro said he felt as though he was re-arranging deckchairs on the titanic as far as any measures he could take.  Ultimately at those rates which now follows salaries as the 2nd biggest cost the business faces, it would need to close or attempt to charge prices that are highly unlikely to attract any custom.

BBC news reporter Nina Warhurst recently reported from a market in Birmingham having also covered the north west and Yorkshire in the week’s analysis of businesses responding to the energy crisis. She remarked “I’ve never known anything like it, businesses are hanging on by a thread!”

In response to the energy crisis the prime minister, Liz Truss and her new cabinet have introduced the following measures.

Households

  • In England, Scotland and Wales the £3,549 price cap for typical households due to come in force from October 2022 is to be reduced to £2,500 and essentially and reassuringly will be held for the next 2 years.
  • The £400 energy bill support scheme will go ahead for all households as planned from October.
  • The above measures will result in pricing close to the cap level introduced in April 2022 at £1,971.
  • The prime minister advised that the measures will save the average household approximately £1,000 a year.
  • This guarantee supersedes the Ofgem price cap, and has been agreed with energy price retailers.

Business

  • Businesses will have a scheme similar to that agreed for households but only initially over a six-month period. It will provide equivalent support to that being offered to consumers, with a matching of the capped payments at the same price per unit – or kilowatt hour (kWh).
  • Three months into the business support scheme it will be reviewed to assess the need for any longer-term targeted support for *vulnerable businesses once the six month period comes to an end.
  • *Vulnerable industries were identified as hospitality, leisure, charities and the public sector. It’s not clear where this will leave many other businesses who rely heavily on energy in the production of their products or services.
  • This mixed news for business is yes, there will be immediate support come October but frustratingly the scheme is light on detail. Six months, unlike the two years offered to households, is not long enough to see a reduction in wholesale pricing and it will leave many business owners anxious.
  • As a result of these measures the government will be borrowing at least £100bn and at this stage we are not clear as to how long the support will be required or in the case of commercial customers be offered.

We would’ve hoped for greater certainty and detail within the business support package and it’s certain that business groups will be lobbying hard for a more substantial offering to provide reassurances and protect companies and jobs in such and uncertain period.

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