Government to reduce business energy support from April

CLA Senior Economics and Rural Business Adviser Charles Trotman explains how changes to energy costs might impact your business
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The government has confirmed that support available under the current Energy Bill Relief Scheme (EBRS) for businesses will be reduced from April 2023.

Under the EBRS, the wholesale energy price is effectively capped at 21.1p/kwh for electricity and 7.5p/kwh for gas. However, the scheme was only meant to last until the end of March.

Following calls from business organisations, including the CLA, the government has decided to retain an element of support to avoid a cliff edge that would have adversely affected all businesses. However, given the costs involved, the level of support will be reduced.

As from April 2023, for 12 months, businesses will receive a discount, rather than a cap on prices being applied, when energy prices are high. Under the discount scheme, businesses will benefit from a discount of £19.61p/kwh for electricity and £6.97p/kwh for gas. Details will be circulated when available.

Even with the current relief scheme, CLA member businesses, along with many others, have been struggling with the high and volatile cost of energy. The reopening of the economy after the pandemic lockdowns in July and August 2021 led to high levels of demand that forced up energy costs, particularly the wholesale gas price. The Russian invasion of Ukraine in February last year exacerbated the volatilities in global energy markets.

A number of businesses in the rural tourism and hospitality sectors are either having to trade on reduced hours or have shut temporarily during the winter months. In addition, input prices, such as the fertiliser price, remain under pressure, widening the gap between the farmgate price and the retail price.

Looking at the wholesale gas market in 2021 and 2022, there were three noticeable peaks: July/August when global economies began to reopen (300p/therm); February/March 2022 when Russia invaded Ukraine (540p/therm); and August 2022 when the Nordstream 1 gas pipeline was switched off (635p/therm).

However, current prices are trading at 180p/therm, still substantially higher than the 5ive year average of 68p/therm but far lower than when they were at their peak last year. Although markets remain volatile, there is a cautious optimism that lower prices will begin to be reflected in lower costs for business.

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How might other updates to our cost of living hub impact your rural business?

Key contact:

Charles Trotman
Charles Trotman Senior Economics and Rural Business Adviser, London