Industry ‘welcomes’ UK government’s energy price cap with reservations
Yesterday (21 September), Business Secretary Jacob Rees-Mogg announced an energy price cap for non-domestic users in Great Britain between 1 October 2022 and 31 March 2023. This will be reviewed in three months and could be extended for vulnerable business such as the hospitality sector.
The business cap follows an announcement earlier this month that energy bills would be capped at £2,500 for a typical household from October for the next two winters.
While the move has been welcomed by the bakery industry, there are still many reservations.
Bakers on a knife-edge
Scottish Bakers CEO Alasdair Smith said its members are facing very real challenges, not only with soaring energy costs, but rising ingredient prices, too, so the price cap will provide much needed relief.
“Scottish Bakers members had recently shared their concerns that the soaring cost of energy and other input costs – including all major ingredients that go into our nation’s daily bread, savoury snacks and sweet treats – was threatening their long term survival,” said Smith.
“Some businesses, for example, reported quotes for energy renewals at 8-10 times their current rate per unit. And while there will still be some steep increases for some, there is a sense of relief throughout the trade and a sense that this cap will help protect businesses from the worst excesses of recent market prices.”
It’s still not all plain sailing though, as the price cap – at 21.1p per kw/h for electricity and 7.5p per kw/h for gas – comes with a LTO (limited time offer).
Added Smith, “There remains disappointment that the time frame for relief has been limited, currently, to six months. As a vital part of the country’s food chain, and where energy represents a disproportionately high percentage of input costs, Scottish Bakers once again call for this relief to be extended as required to secure the long term future of the trade.”
The UK’s craft sector is equally guarded.
Karen Dear, director of Operations for the Craft Bakers Association (CBA), said, “While it is indeed a relief to our members that they will not be facing the huge bills many were expecting – ranging from an increase of 83% to 533% – most will still be paying at least a third more than last year.
“This on top of a significant increase in ingredient and other costs, means that it will still be a tough winter.
“Also, as it stands at the moment, this cap is only for six months, which makes planning almost impossible. While we recognise the government is reviewing the package in three months, we would have preferred the support to be guaranteed for 12 months and to have greater clarity now about what it actually will include.”
Much-needed relief
Food and Drink Federation (FDF) CEO Karen Betts is more optimistic, saluting the scope of the scheme and the speed with which it is being rolled out.
“It addresses the largest and most volatile cost pressure facing our industry right now,” said Betts.
“Although some aspects of the scheme are still to be clarified, it offers relief to food and drink manufacturers across the UK.”
The Federation of Small Businesses’ national chair Martin McTague also applauded the government’s swift action, possibly saving 16 million employees from the chop as small businesses fold under economic pressure.
“Small businesses called for decisive action – now the government is delivering. Ministers have listened to our community and got this big call right. Now it’s up to energy retailers to live up to the high bar set today and make sure this help reaches those on the ground,” said McTague.
Stephen Phipson, CEO of Make UK, which champions the manufacturing sector, said the scheme is simple to understand and gives much needed reassurance to the business sector.
“However, as it appears prices will likely remain high for many months to come, industry will need support for a longer period [that the six months] to protect jobs and remain competitive,” said Phipson, adding all eyes are now on the 3 month review.
Walid Koudmani, chief market analyst at financial brokerage XTB, also questions the LTO.
“The cap on wholesale energy prices was desperately needed for businesses with the high street especially facing a cold and dark winter ahead. In this sense, it will give businesses some much needed relief,” said Koudmani.
“There are two immediate question marks, however.
“First, how much will it cost and what is the impact on UK borrowing? Remember, this comes on top of the announced £150bn package for households in the next two years.
“With the treasury refusing to publicise the latest OBR [office for budget responsibility] forecasts in this week’s mini budget, it’s no wonder that investors are selling the pound yet again. Secondly, is six months really enough? I can foresee that being extended but nevertheless, this is a good first step.”
Long-term assurance needed
As Koudmani said, this is just the first step. Industry is calling for even more action by the government to avoid a dire outcome.
“We will continue to liaise with the BIES (Department for Business, Energy and Industrial Strategy) for some guaranteed long-term support for our members to ensure their businesses can continue to operate without redundancies or worse,” said CBA’s Dear.
Scottish Baker’s Smith and president Ian McGhee are meeting with the Secretary of State for Scotland to press for longer term support.
“We remain concerned that the cap for businesses is only in place for six months compared to 2 years for households – but the promise of a review to look at longer-term support for business is welcome and we will be making representations to government to acknowledge that the sector is a high energy user and need longer-term stability if it’ is to survive,” said Smith.
The Real Bread Campaign has also sent a letter to new UK PM Liz Truss, urging more intervention to help prevent the 2,500+ micro and small UK bakeries from bankruptcy.
“Due to a confluence of external factors, many of these formerly thriving small bakery businesses have suddenly found themselves in financial crisis,” said Campaign coordinator Chris Young.
“We welcome the Energy Price Guarantee for business,” but what small bakery owners (including home-based sole traders) need is to “receive ongoing, focused support after the initial six-month period.”
The Campaign is calling for:
- Easy-to-apply for grants to cover (what will hopefully be short-term) increases in operational costs.
- The ability to reclaim VAT on energy costs.
- A raise of the small business rates relief threshold.
- A government-backed, not-for-profit collective procurement body to purchase electricity and flour at bulk rates to enable small bakeries to benefit from discounted prices.
- Government support in covering the costs of redundancies, dilapidation of building and early surrender costs on leases if a small business is forced out of business.
- Advice and assistance on how to reduce energy usage and grants to help bakers transition (equipment, buildings) to becoming more energy-efficient.
Institute of Directors director general Jonathan Geldart called the government’s price cap 'important', but 'short-term'.
“We look forward to working with the government in the coming months to ensure that further relief is targeted at those industries and sectors whose survival is most threatened by current economic conditions,” said Geldart.
“Ultimately, however, business and government will need to work hand in hand to develop domestic energy sources and reduce consumption and dependency on expensive fossil fuels.”
Energy bill relief scheme
The UK government will provide a discount on wholesale gas and electricity prices for all non-domestic customers whose current gas and electricity prices have been significantly inflated in light of global energy prices.
Non-domestic customers on existing fixed price contracts will be eligible for support – expected to be £211 per MWh for electricity and £75 per MWh for gas: less than half the wholesale prices anticipated this winter – as long as the contract was agreed on or after 1 April 2022. It includes the removal of green levies paid by non-domestic customers who receive support under the scheme.
Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, with a maximum discount likely to be around £405/MWh for electricity and £115/MWh for gas.
It will apply to energy usage from 1 October 2022 to 31 March 2023. The savings will be first seen in October bills, which are typically received in November.
As with the Energy Price Guarantee for households, the p/kWh discount will automatically be applied to bills.
“I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods,” said PM Truss.
“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind. At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”
