Energy

New energy bills support package for business is not finely targeted, but broadly reasonable | Nils Pratley


A perfect energy support package, whether for households or business, would be targeted at those most in need. That is not what the chancellor, Jeremy Hunt, delivered on Monday as he dialled down the generosity in post-March arrangements for business.

The new formula is not quite one size fits all, but it’s not far off. Energy-intensive users – think steel and glass makers – have been earmarked as priorities, but everybody else is lumped together. And small and large businesses will be treated alike.

Unfair? A failure of imagination at the Treasury? Well, there is a case for the defence. A tailormade package that distinguishes in fine detail between sectors and between sizes of companies would be a heroic undertaking, in practice. Planners would quickly run into blurred lines and problems of definition. The plea that even energy suppliers don’t have the necessary data is credible.

Thus Hunt’s broad line of thinking in the new “energy bills discount scheme” is reasonable as far as it goes. The current fixed-price package for business is estimated to cost £18bn over six months – less than the £40bn that once seemed likely, but a level of spending that would indeed become “unsustainably expensive” for the public purse if sustained indefinitely. Wholesale prices have fallen in the past month, meaning an exact replica probably wouldn’t cost as much over the equivalent period after April, but the government cannot know that for sure. Prices move. A formula that applies a discount to the wholesale price – as opposed to a fixed, guaranteed price – seems a reasonable fudge.

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Or, at least, it seems reasonable for the time being. If we’ve learned anything over the course of 15 months of volatility in energy markets it is that it pays to keep options open and to adapt. Rishi Sunak, when chancellor a year ago, needed two goes at assembling a workable package for households because prices soared – and then soared again – after Russia’s invasion of Ukraine. The Liz Truss/Kwasi Kwarteng show attempted a blank-cheque guarantee for all households until October 2024 that was quickly deemed unaffordable by the gilts market (unfunded tax cuts and a general air of incompetence in government didn’t help either, obviously) and had to be reversed.

The lesson Hunt should draw from those episodes is that tweaks and even serious overhauls may yet be needed. Not every sector can be regarded as a special case, but the hospitality industry makes a strong argument that it is particularly exposed. As with the furlough scheme during Covid, the logic of boosting support would be enlightened self-interest: we need a high-employment sector to emerge in reasonable shape on the other side of recession. Hunt should not rule out a rethink for pubs and restaurants, where an average annual saving of £2,300 for a small pub is not much. And he may have to reappraise what counts as an “energy intensive” manufacturer: the definition has been broadened a bit this time from a traditional understanding, but there is scope to go further.

He has some room to do so thanks to those same lower wholesale prices. The Centre for Economic and Business Research estimates the fall in gas prices will save the Treasury £12.8bn in energy subsidies and debt interest payments versus previous estimates this financial year. There are many possible options for deploying that “fiscal headroom” (the NHS, for starters) but logic says a portion should be earmarked for recycling into energy support if needed. Prices could climb again. In the current climate, any scheme intended to last for 12 months is a hostage to events.

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One can, though, still applaud the general intention to get the government’s bill down. At some point, it is reasonable to expect businesses to adapt to higher energy prices and live without taxpayer support. This is as good a moment as any to start the process – and thanks to the mild winter, the timing is better than pre-Christmas, when this announcement was originally intended.

But Hunt should remember pragmatism. At £5.5bn for 12 months, Monday’s package is worth substantially less than its predecessor. Holes in some parts of the business landscape will inevitably emerge. Don’t overdo the ideology. Be prepared to be more generous if events demand.



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