The Confederation of British Industry (CBI) has urged the UK government to extend the Energy Bill Relief Scheme for significant energy users beyond the end of March 2023 and provide additional cash flow support for vulnerable businesses, especially small and medium-sized enterprises (SMEs).
Since September, the Energy Bill Relief Scheme has been crucial in shielding business from rising wholesale gas and electricity costs following Russia’s invasion of Ukraine. In short, it has protected companies from major financial losses and saved many from collapse.
Although the government has committed to providing some support from April onwards, companies need to know if they will or won’t qualify before the end of the year, helping them to plan ahead.
The CBI has urged the government to provide clarity on this before the end of the year.
While wholesale gas and electricity prices have fallen back from their previous spikes, they are expected to remain historically high in the coming year – a CBI survey of nearly 700 businesses shows that companies expect their energy costs to more than double (151%) if government support was no longer available from April 2023 (and once any fixed price contracts expire).
The CBI believes that the most vulnerable businesses, especially SMEs, still need to be protected from April 2023 onwards. It identifies several policy options the government is being urged to explore to help businesses overcome rising energy costs in the short to medium term.
“The CBI has merely said what everyone already knew: businesses cannot afford to foot the bill for the UK’s poor economy,” said Mohsin Rashid, co-founder of software company ZipZero.
“Let us never forget that the original package contained two years of support for businesses and individuals; it was later stripped down after self-detonated economic destruction threatened the stability of the country,” he added. “At present, we are all set to pay for those mistakes in the businesses that close, the jobs that are lost, and the children who go cold and hungry over winter. The hour is desperate. The appeal is not new.”
The CBI’s policy recommendations
The high cost of energy is dominating the decisions that businesses are making each and every day.
As such, the CBI would like to see direct support to help vulnerable companies pay their energy bills. In other words: targeting the Energy Bill Relief Scheme to significant energy users that are most exposed to higher energy costs.
Importantly, the scheme should also go beyond the definition of energy-intensive industries to include other industries such as automotive and food and drink manufacturers, for example.
Secondly, the CBI is calling for additional cash flow support to enable companies to adjust to the high-cost energy environment. For instance, the government could replicate ‘time to pay’ flexibilities granted due to Covid-19 to take account of energy price rises.
“We must take heed of the lessons from the pandemic, where providing additional cash flow support, especially to SMEs, was critical to seeing businesses through this period,” said Matthew Fell, the CBI’s chief policy director. “Allowing businesses to defer energy bills if needed and providing grant funding through local authorities can play key roles in 2023.”
Lastly, the CBI is urging the government to use policy to drive a step change in business energy investments to improve the security and resilience of the system. For example, for businesses investing in energy efficiency, or making any ‘green’ capital investment, capital allowances should be increased to 120% of the investment value.
“Government support has been considerable already, but with the UK falling into recession, we must ensure any downturn is short and shallow, so extending targeted support must be on the cards,” said Fell.
However, Rashid is not optimistic that the government will move fast enough. “Politically, the government [is stuck]: extending energy support for businesses would have to include individuals as well, measures it claims the country can no longer afford,” he said. “Yet, morally, it has no choice. It is just a question of how many will suffer while we wait for the sound of another screeching U-turn.”