Groups representing more than 100,000 UK firms have accused ministers of taking a “scattergun” approach to supporting businesses with their gas and electricity costs, amid fears many will be forced to close this year by unaffordable bills.
Earlier this month, the chancellor, Jeremy Hunt, confirmed that the scheme designed to soften the blow of soaring monthly payments for energy would become significantly less generous from April.
In a letter to business secretary Grant Shapps, industry bodies including the Association of Convenience Stores (ACS), the Federation of Small Businesses, and UK Hospitality urged the government to rethink its approach to let firms renegotiate contracts agreed when wholesale gas prices peaked last summer.
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It has been estimated that firms that signed fixed price energy contracts between August and October last year will receive a discount of between 25% and 55% on electricity under the existing scheme running until April. After that, most businesses will receive discounts of only 0.7% off their gas and 2% off their electricity bills.
In the letter, seen by the Guardian, the industry bodies say: “We are urging [the business department] and Ofgem to encourage energy suppliers to allow the most vulnerable businesses to renegotiate or ‘blend and extend’ their energy contracts to reflect significantly lower wholesale prices now available.”
They argue that businesses should have the right to renegotiate contracts with energy suppliers if they can prove they signed the contract at high prices and that the contract ends after the existing government scheme concludes at the end of March.
Wholesale gas prices began to rise in late 2021 and soared after Russia’s invasion of Ukraine in February 2022, peaking in August amid concerns over winter gas supplies. Gas prices have fallen in recent weeks but that drop has yet to feed into domestic and business bills as suppliers buy their energy in advance.
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James Lowman, chief executive of the ACS, said: “The government has failed in its attempt to come up with a solution to help businesses that need urgent support on energy costs, instead opting for a scattergun approach that won’t make a dent in the bills of thousands of shops facing huge hikes in their energy bills this year.
“Without urgent intervention to allow businesses to renegotiate fairer contracts, local shops will be forced to close their doors in numbers.”
Emma McClarkin, chief executive of the British Beer & Pub Association, said: “For many vulnerable businesses it will be the difference between being able to continue as a viable business and not.”
Hunt reduced the discount through the scheme amid concerns over the cost to the Treasury. The first six months of the policy, introduced in October, are estimated to cost £18bn, and the chancellor has set a cap of £5.5bn for the final 12 months of the scheme
As well as reducing help for businesses, Hunt has also made the energy price guararantee for domestic customers less generous. From April, the cap on the typical household gas and electricity bill will rise from £2,500 to £3,000 for the following 12 months.
Labour has said it would extend the support if it were in power. The shadow chancellor, Rachel Reeves, said in a speech to the Fabian society on Saturday that the move would be funded by an expanded tax on energy companies’ profits, which it estimates could raise a further £13bn if backdated to 2022.
Asked how long the support would last, Reeves told the BBC’s Sunday With Laura Kuenssberg programme: “We’ve made a commitment for three months, but we think we could raise an additional £13bn through the windfall tax and this announcement that I’ve made about freezing the price cap … costs a fraction of that.”