Taxpayer to cover half of businesses’ electricity bills

The taxpayer is to cover half of businesses’ electricity costs this winter in a bailout intended to stave off a wave of winter bankruptcies following surging wholesale prices.

Jacob Rees-Mogg, the Business Secretary, will on Wednesday morning announce that the Government will limit the amount companies can be charged for their energy bills amid fears that thousands will collapse without state support.

The intervention is expected to reduce companies’ electricity bills by 50pc and cut their gas costs by a quarter.

This redcution is set to last for six months from October and will be applied directly to thousands of companies’ bills. Details are expected to be announced by the business secretary at 9am. 

The cap is expected to limit the rate businesses can be charged by their energy provider to around 21.1p per kilowatt hour for electricity and 7.5p per KWh for gas, substantially below expected wholesale costs.

The Government will pay providers to make up the difference.

The cap only applies to the wholesale costs. Businesses pay other charges on top, but these are relatively small.

It comes less than two weeks after ministers stepped in to cap household energy bills at an average £2,500 per year for two years from October, amid concerns millions would be tipped into extreme financial problems. 

Martin Young, an analyst at Investec, estimated that the bill to help businesses could hit £25bn or more, with other experts predicting a price as high as £40bn.

The total bill for businesses and household support could reach more than £114bn significantly more than the Covid furlough scheme, which cost £70bn.

Speaking in New York on Tuesday, Liz Truss, the Prime Minister, insisted the overall costs would be “mitigated, first of all by the overall benefits to the economy, but also the fact that we are now investing in the long term supply.”

Separately Mr Rees-Mogg is also preparing to ease restrictions on earth tremors caused by fracking after energy companies warned that the current limits will block a new “dash for gas”.

The Business Secretary is preparing to lift a moratorium on new fracking developments as part of Prime Minister Liz Truss’s plan to bolster Britain’s energy security.

The Telegraph understands he also favours increasing the limit on seismic activity after energy companies warned that just scrapping the moratorium will not be enough to unlock potential reserves of shale gas.

At present, drilling must be temporarily halted if it triggers seismic activity of magnitude 0.5 or more, a threshold so low that it prevents developers testing whether commercial extraction of shale gas is even possible. 

A senior government source said: “If we were to stay at 0.5, which is unnoticeable, there will not be any fracking. So if we want fracking, that has to go.”

A surge in wholesale gas prices amid cuts to European gas supplies triggered by Russia’s war on Ukraine has triggered a crisis in the costs of living and doing business, and sparked a race to improve UK energy security.

Without government intervention, household energy bills would have risen to an average £3,549 from October.

Businesses whose contracts are up for renewal in October face increases of four or five-fold.

Governments across Europe have committed hundreds of billions of euros to tax cuts and subsidies in recent weeks to tackle high prices. 

Amin Nasser, boss of Saudi state oil giant Aramco, said on Tuesday that such caps were not a long-term solution and argued the crisis was sparked by underinvestment in fossil fuels.

Warning of a “severe and prolonged” energy crisis, he said: “Taxing companies when you want them to increase production is clearly not helpful.”  

It is expected the support for UK businesses will apply to all non-domestic energy users, including companies, charities, local authorities and churches. A review in three months’ time will determine which industries should qualify for further support once the initial six-month period runs out. 

Providing support for businesses is complicated given the huge variety of contracts they have with suppliers. 

An industry source said the support could “vary depending on what kind of contract you have, when you signed it and whether it is variable or fixed.” 

Businesses last night welcomed the support but said more would be needed.  

Kate Nicholls, chief executive of the UKHospitality trade group, said: “For us there are a couple of question marks. 

“This ends at six months. But for many of our businesses they have had very high bills since April and the situation has been deteriorating. Some have signed contracts at 12 times the level they are at. What happens after the 6 month period? 

“They have been paying those bills for a long period of time and hemorrhaging cash. Those businesses are going to need additional support over and above energy relief to get them back on track. 

“This is a sticking plaster a comprehensive sticking plaster but businesses are clinging on by their finger-tips.”

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