The UK is easing pressure on business by halving energy bills this winter

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  • Wholesale electricity and gas bills will be capped from October
  • The level will be less than half the current market prices
  • The government says the deal will prevent companies from collapsing

LONDON (Reuters) – The British government said on Wednesday it will cap wholesale electricity and gas costs for businesses at less than half the market price from next month, helping ease pressure from rising energy costs, but accelerating the government’s spending hike.

The wholesale price ceiling for electricity will be set at EGP 211 (US$ 239) for megawatt-hours and gas at EGP 75 per megawatt-hour, compared to expected market prices of EGP 600 and EGP 180, respectively. Read more

“We intervened to stop the collapse of companies, protect jobs and curb inflation,” said Finance Minister Kwasi Kwarting, who is due to give a financial update on Friday.

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Wholesale prices for gas and electricity soared in Europe after Russia invaded Ukraine and have remained volatile ever since. Final unit prices for the scheme will be confirmed on September 30th.

Groups representing companies from bars to steelmakers welcomed the intervention, saying the government had thrown a lifeline for companies struggling to survive. Read more

The government has not published any cost estimate, but Citi has projected between 25 and 30 billion pounds over the next six months, and other reports have put the price at up to 42 billion pounds. It comes on top of more than £100bn of a previously announced scheme to help families. Read more

“The difficulty with setting the cost figure is that it will depend on where energy prices are going to rise during the winter, and it’s very difficult to predict that, so I can’t give you an absolute cost,” said Business Secretary Jacob Rees-Mogg.

“It will be in the tens of billions of pounds, no doubt,” he said. Read more

A spokeswoman for Prime Minister Liz Truss said Quarting’s financial event will determine cost estimates for support packages for businesses and families.

critical test

Sheep graze under a row of electricity pylons near the port of Ellesmere, Britain, October 11, 2021. REUTERS/Phil Noble/

After weeks of political stagnation as the ruling Conservatives chose a new leader and the country mourned the death of Queen Elizabeth, this week the government made several announcements aimed at averting an impending economic crisis.

On Friday, Kwarteng is expected to set out some details about how he will pay for the power scheme while simultaneously making good on his promises to cut taxes, although the overall cost of the power plan will depend on market prices over the coming months.

Investors say Friday’s statement will be a critical test of confidence in Britain’s public finances. Borrowing costs are rising at the same time that the government is committed to increasing spending, and ministers are counting on accelerated economic growth to prevent the bill from spiraling out of control. Read more

Kwarteng said on Wednesday that he pledged to reduce debt in the medium term, but that it was “absolutely right” to help families and businesses in the face of a major economic shock.

The Business Energy Scheme will initially apply from October 1 to March 31, 2023, to all non-domestic energy users, including charities and the public sector such as schools and hospitals, as well as businesses. Read more

The scheme initially provides urgent support to all of these organizations that may need it, but is expected to narrow down in March with support directed to those most in need.

“We’ll review it in six months,” Truss told broadcasters. “We’ll make sure that the most vulnerable businesses like bars like stores continue to be supported after that.”

The government also announced support for families in Northern Ireland at the same level as the equivalent scheme in the rest of the UK, from November but back to the beginning of October.

The scheme was heavily criticized by most of the political parties in the region who said that the extra payment of 100 pounds to families who were unable to receive subsidies through the price cap because they were using alternative fuels such as heating oil was not enough.

More than two-thirds of households in Northern Ireland use oil boilers as their main source of heating, the largest proportion in Western Europe, according to the Northern Ireland Consumer Council.

(dollar = 0.8822 pounds)

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Additional reporting by Paul Sandel, William James, Alistair Smoot, David Milliken and Kylie McClellan, as well as Padrick Halpin in Dublin and Amanda Ferguson in Belfast; Editing by Mark Heinrich, Angus McSwan and Mark Porter

Our Standards: Thomson Reuters Trust Principles.

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