The reduction in government support for companies’ energy bills could threaten their efforts to reduce fossil fuel emissions, a leading consultancy has warned.
The Treasury announced on Monday that it plans to slash the support available to “non-domestic” energy customers – including businesses, schools, hospitals and charities – from April in a bid to reduce the cost to the government.
Business groups immediately warned that the significant cuts could threaten firms’ survival with costs likely to stay high this year in comparison to prices before the energy crisis began in 2021.
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The leading energy consultancy Cornwall Insight warned on Tuesday that, as well as the effects on business earnings and cashflow, the cut to support could curb businesses’ ability to invest in decarbonisation.
Gareth Miller, its chief executive, said: “Aside from the impact on the financial integrity of businesses, the government must also weigh up the constraints on capacity of the UK business sector to invest significantly in the decarbonisation of business and industry.
“Ultimately, decarbonising industry and business requires investment of ever larger volumes of capital as the decade progresses.”
Miller said that some larger firms will still be able to implement their plans but many “may now be unable to create borrowing capacity or free cashflow, at least over the coming few years, while they face this cocktail of cost challenges”.
“It’s not about the will, it’s about the means. If the government is going to reduce direct support for business energy bills, then perhaps the policy focus should turn to how they can offset this by using tax and investment incentives, the design of energy markets, and greater financial reward for the demand side, allowing businesses to offset financial pressures, as well as maintain their pursuit of net zero,” he said.
The new bills scheme will see companies get a discount on wholesale gas and electricity prices for a year instead of the current system, which caps costs.
Manufacturers with heavy energy usage, such as glass and steelmakers, will get a greater discount. However, most businesses will receive just 0.7p a kilowatt hour off their gas bills and 2p a Kwh off their electricity costs.
The Green party MP Caroline Lucas said: “This decision does pose an existential threat to small businesses, many of whom think that in a sense they’re being left vulnerable to wholesale energy price hikes while the government washes it hands and walks away.”
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Tania Potts, the owner of Laundry Central in Clacton-On-Sea, Essex, said: “The reduced support is extremely disappointing and worrying. As a high energy user the current level of help has been crucial in keeping my business going.”
Potts said she opened her dry cleaners and launderette in 2019 and has had “no choice but to put my prices up but any higher just isn’t feasible”.
“When you’re talking about my size of business you’re talking about keeping a roof over a family’s head, not the level of bonus being paid to high earners,” she added.
The government will spend an estimated £18bn on the first six months of the scheme and has said the cost of its final 12 months will be capped at £5.5bn.
On Monday the government also announced a revamp of the capacity market – which is designed to ensure there is a reliable electricity supply regardless of the weather – to incentivise investment into low-carbon technologies.