Firms expect 151% energy costs hike next year

Businesses expect their energy costs to more than double if the government ends its bills support for firms in April, according to a new CBI survey.

The business umbrella body, which has urged the government to extend its energy costs support for firms beyond its current cut-off date in March, says companies expect energy costs to remain “historically high” throughout next year.

According to a survey of nearly 700 members, there is an expectation that energy costs to increase will 151% if government support is no longer available from April 2023 and once any existing fixed price contracts expire.

The survey shows that 67% of firms would be exposed to an increase in energy bills when the Energy Bill Relief Scheme (EBRS) expires at the end of March, rising to 74% by the end of June next year.

The EBRS, which offers non-domestic customers discounts on their winter energy costs, is due to end in April.

Chancellor of the Exchequer Jeremy Hunt announced in his Autumn Statement that support after this date for business energy costs will be “significantly lower” than it currently is.

However, the CBI said that the most vulnerable businesses, especially SMEs, will still need protection against rising energy bills from April 2023 onwards.

The EBRS should be extended and targeted at “significant” energy users, the CBI says. The existing definition of energy-intensive industries, such as steel, should be stretched to include other sectors such as automotive and food and drink manufacturers.

In addition, the government should make grant funding available to SMEs through local authorities, says the CBI.

The government should also provide additional cashflow support to enable companies to adjust to  higher energy costs, such as instructing the HMRC to replicate ‘time to pay’ flexibilities granted during the pandemic and publicising that the Recovery Loan Scheme remains open for applications.

In addition, capital allowances for businesses investing in energy efficiency or other green capital measures should be increased to 120% of the investment value, says the CBI.

Businesses have also pushed for an expansion and extension of the Industrial Energy Transformation Fund and the launch of a Help to Green voucher scheme for small and micro businesses to spend on items like energy efficiency or solar panels.

Matthew Fell, CBI chief policy director, said: “The high cost of energy is dominating the decisions that businesses are making each and every day. There are no easy answers in all this, but the government will have to keep supporting the most vulnerable firms to help them stay competitive, to build resilience and in some cases to avoid collapse. On average, firms expect their bills to more than double next April.

“The Energy Bill Relief Scheme has been crucial in cushioning firms from spiralling energy costs. The CBI understands and supports the government’s decision to target the scheme from April 2023 onwards. The cost is simply too great to continue indefinitely, and the need is not evenly distributed among all businesses. Any extension must be aimed at firms that use the most energy, just as many of our European counterparts have already committed to doing. And businesses need to know before the year is out if they qualify or not.

“We must also take heed of the lessons from the pandemic, where providing additional cashflow support, especially to SMEs, was critical to seeing businesses through this period. Allowing businesses to defer energy bills if needed and providing grant funding through local authorities can play key roles in 2023.

“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.”