UK to cap energy prices for businesses, with rates cut by up to half

Government offers support for companies, charities and public sector organisations for six months

Business Secretary Jacob Rees-Mogg has set out details of a government support package for businesses, running to tens of billions of pounds. Getty Images
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The UK will impose a cap on energy prices paid by businesses this winter, cutting rates by up to half to contain the effects of soaring costs.

Government support will be available to companies, charities and public sector organisations for six months from October 1, Jacob Rees-Mogg, the UK’s newly appointed business secretary said.

Speaking during a trip to New York, Prime Minister Liz Truss said the government stepped in to protect jobs.

“There [was a] very real danger, before we put in place our business scheme, that cafes, pubs and shops could go out of business, and we simply couldn’t allow that to happen," she said.

“That’s why it is right for the government to take the steps that we’ve taken.”

The rate for electricity will be slashed by about 50 per cent, while gas prices will be cut by 25 per cent for non-domestic customers.

Business customers will pay a maximum of 21.1 pence per kilowatt-hour for electricity and 7.5 pence for gas.

The level of the cap has been set at less than half the wholesale prices anticipated this winter.

The government has said it will pick up the tab, compensating suppliers for the reduction in wholesale gas and electricity unit prices they are passing on to non-domestic customers.

The scheme will initially apply from October 1 to March 31 next year for all non-domestic energy users, including charities and the public sector such as schools and hospitals, as well as businesses.

It comes weeks after it was announced that household energy bills would be capped at £2,500 ($2,835) a year from next month.

Energy prices across Europe have soared since Russia squeezed pipeline flows to the region after it was hit by sanctions for invading Ukraine.

But unlike households, British business energy costs are not protected from wholesale market volatility by regulator Ofgem’s price cap.

Britain will impose a cap on energy prices paid by businesses this winter, cutting rates by up to half. AP

That has led many bills for small businesses to jump by as much as 10 times, forcing some to close.

Even with government help, businesses will be paying far more than they are used to.

Before energy prices started to increase last year, wholesale rates held steady at about 5 pence for electricity and 4 pence for gas.

The energy support packages for households and businesses are “something of almost a panic reaction”, the director of the Institute for Fiscal Studies said.

Economist Paul Johnson told BBC Radio 4's Today programme: “I think something like this was inevitable. Some businesses were seeing their energy bills going up by five times.

“Just as households were going to need some protection, so were businesses.

“I think one of the positive things about the business announcement is that they appear to be looking at reviewing this and coming back with something more targeted in six months' time.

“I rather wish they had done the same for households because for households and for businesses this is something of almost a panic reaction."

The Federation of Small Businesses previously said that without significant intervention, the UK faced a “lost generation” of traders.

It said a cap would not affect high standing charges imposed by suppliers.

Larger businesses are also raising concerns.

Ms Truss, who is at the UN General Assembly in New York, said: “What I can say is that for businesses that are vulnerable, who don’t have the wherewithal to … invest in their own energy supply, we will be providing support in the longer term.”

Updated: September 21, 2022, 10:05 AM