Energy quick fix

Businesses are struggling to absorb the increased cost of energy which, for some, makes up the greatest part of their expenditure. Last year, the Government put in place a scheme to cap the unit cost of gas and electricity to lessen the impact. This expires at the end of March and is to be replaced by discounts on wholesale prices. Heavy energy-using sectors, such as steel, glass and ceramics, will get the most help, though the definition of what constitutes heavy usage has been broadened.

The cost of the current scheme at about £18billion over six months made its continuation impossible and Jeremy Hunt, the Chancellor, said it had become “unsustainably expensive”. State assistance during the pandemic gave a false impression that there was an inexhaustible reservoir of money to be distributed in difficult times. There isn’t, and the Treasury needs to rein in its spending. However, for businesses on the margins of profitability, these next few months will be hard. Some will have been started when borrowing costs were close to zero but higher interest rates and rising inflation have only added to their woes.

Even so, the new scheme – which will run for a year to avoid a “cliff-edge” shock – will cost an estimated £5billion even as the wholesale prices of oil and gas continue to fall. Mild weather in northern Europe has meant stockpiles have held up better than expected, while reliance on Russian supplies has declined. This has helped reduce the overall costs likely to fall on the taxpayer; but the experience of the past year is that the energy market is in dire need of a total overhaul and not just periodic quick fixes.