The Daily Telegraph

Rees-mogg battles winter crisis facing business

Secretary of State unveils broad support package for companies, write Rachel Millard and Matt Oliver

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‘We have stepped in to stop businesses collapsing, protect jobs and limit inflation’

‘I think business is feeling a lot better today than it was six weeks ago when there was no end in sight’

Restaurate­ur David Moore has had to change his expectatio­ns as crisis follows crisis. First, coronaviru­s sent London into lockdown. Now, soaring gas prices amid Russia’s war on Ukraine have pushed up energy bills and lightened customers’ pockets.

“Break-even is a new utopia,” says the owner of London’s Michelin-starred restaurant Pied à Terre. “There are a lot of worried businesses.”

For months, businesses concerned about their energy costs have been imploring the Government for support, warning of a wave of bankruptci­es without it. Yesterday, ministers stepped in with a yet-to-be-costed subsidy plan that analysts said could land taxpayers with a bill of up to £48bn.

Businesses, schools, churches and local authoritie­s will have wholesale energy costs cut roughly in half, with the Government paying the difference to suppliers. It comes days before Kwasi Kwarteng, the Chancellor, announces a “mini-budget” including tax cuts for businesses and households as the Government stakes its future on a dash for growth. “We have stepped in to stop businesses collapsing, protect jobs and limit inflation,” Kwarteng said.

The move was broadly welcomed by business groups, although risks lie ahead, including a “cliff-edge” for businesses and a danger ministers will find themselves locked into propping up the energy market for far longer than planned if prices remain high.

“The scheme has been put in place very quickly and so has had to override some fundamenta­l market structures and by necessity go with the grain of the existing market,” says Robert Buckley, of analyst Cornwall Insight.

“We hope in the longer term, reform of the energy market is given priority to avoid prolonged reliance on emergency interventi­ons, and a return to normal market dynamics can take place.”

Wholesale gas prices have been soaring because of shortages after countries reopened from the pandemic and Russia restricted supplies to Europe. The high prices have wreaked havoc with inflation running at 9.9pc in the UK. Government­s all over Europe have been forced to step in and shoulder energy costs.

The UK Government has already said it will freeze energy prices for households at an average of £2,500 for two years – well below the £3,549 they would otherwise hit in October, but still almost double last year’s rate.

But support for businesses is far more complicate­d because of the range of contracts they hold with suppliers and the range in the way suppliers buy wholesale energy.

Under the scheme, devised by the Jacob Rees-mogg, the Business Secretary, the Government will step in to effectivel­y keep wholesale rates for business energy at around £211 per MWH for electricit­y and £75 per MWH for gas, similar to the charges being paid by households.

Companies on fixed contracts signed after April 1 will have their wholesale rates cut to this level. Those on variable contracts will be given discounts intended to take their bills to this amount – although this group could pay more in future if wholesale prices rise.

The support only applies to the wholesale part of the bill, rather than the whole rate businesses will pay, including the supplier’s margin. The Government will axe “green levies” used to support environmen­tal schemes and pay out of its own pocket.

The scheme will initially last for six months from October, with a review in three months’ time to determine which businesses get support beyond that. One of the key difference­s with the household scheme is that the Government’s exposure is more limited. With the household support, the Government will pay the difference between the fixed price and what energy companies would have charged their customers. Most households are on variable tariffs. This means that, if wholesale prices rise, the Government is on the hook for the increases. With Russia escalating its war against Ukraine, this is a serious threat. Futures climbed 7pc yesterday morning.

With the business energy costs, however, the Government has capped the maximum discount companies on variable contracts can receive. This will depend on forward prices over the next six months, but the Government said it was likely to be around £405 per MWH for electricit­y and £115 per MWH for gas.

Meanwhile, the amount ministers need to pay for companies on fixed price contracts is limited by the wholesale prices applied to the contracts. Kathryn Porter, consultant at Watt-logic, said the design of the scheme was a “message to suppliers and businesses that the Government is not writing them a blank cheque”.

Martin Young, analyst at Investec, says the final cost is hard to estimate but it could range from £22bn to £48bn over the six months. It is thought about 70pc of businesses are on fixed priced contracts and 25pc on variable.

Suppliers are now racing to put measures in place in time. EDF, one of the largest suppliers by volume, said it was “ready to make sure the price discount is implemente­d as efficientl­y as possible”. E.ON said there was “still a lot of detail to be establishe­d” and called for greater focus on energy efficiency.

The move was broadly supported by business groups. There are concerns, however. Labour’s Darren Jones, chairman of the business, energy and industrial strategy committee, said an untargeted scheme was a “waste of taxpayers’ money”. He added: “Why should British taxpayers collective­ly get into even more debt to hand over public funds to Amazon?”

Others raised questions over whether some companies would fall through the net, for example if they signed a deal before April 1 at a higher rate than the price being supported by the Government.

The Federation of Small Businesses is calling for an extra “hardship fund” for businesses. The Government says it chose this date as it marks the point when wholesale prices started rising above the level at which they are now fixing prices.

Yet businesses were also encouraged by the government interventi­on, as well as the prospect of more to come as Liz Truss makes further announceme­nts tomorrow. “This is still a very worrying time for businesses and there are still a lot of uncertaint­ies,” said one senior business source. “But I think business is feeling a lot better today than it was six weeks ago when there was no end in sight and things seemed to be going from bad to worse.”

For the likes of David Moore, a reprieve cannot come soon enough.

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