Taxpayers to fund half of businesses’ power bills

Companies’ electricity costs to be cut by 50pc and gas by a quarter to stave off wave of bankruptcies

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 this 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 reduction is to last for six months from October and will be applied to thousands of companies.

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.

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.

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

Martin Young, an analyst at Investec, estimated the bill to help businesses could hit £25bn, with other experts predicting a price as high as £40bn. The total bill for businesses and household support could reach £114bn – more than the £70bn Covid furlough scheme.

Speaking in New York yesterday, 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 Ms Truss’s plan to bolster energy security. The Daily Telegraph understands he also favours increasing the limit on seismic activity after energy companies said 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 supplies triggered by Russia’s war on Ukraine has created a crisis in the costs of living and doing business. 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 fivefold.

Governments across Europe have committed hundreds of billions of euros to tax cuts and subsidies in recent weeks to tackle prices. Amin Nasser, boss of Saudi state oil giant Aramco, said yesterday such caps were not a longterm solution and 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 nondomestic energy users, including companies, charities, local authorities and churches. A review in three months’ time will determine which industries should qualify for further support.

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

Kate Nicholls, chief executive of the Ukhospitality trade group, said:“this is a sticking plaster – a comprehensive sticking plaster – but businesses are clinging on by their fingertips.”