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What does the energy price cap mean for businesses?

| Alison Smith | 5 October 2022

While there has been much focus on tax cuts and a cap on energy prices for UK households introduced by the government, it’s been confirmed that businesses will also receive some help this winter with their energy bills.

These price caps for businesses will only remain in place for an initial period of six months.

Energy bill support for businesses

Typically, the average household bill will remain capped at around £2,500 until 2024. Prior to this announcement, energy bills had been due to rise to a staggering £3,549 from October 2022.

The Prime Minister added that business energy costs will be capped at the same price per unit as that of households, but for a much shorter time period. The support scheme will likely cost up to £150 billion, but is considered necessary by the government and will be greatly welcomed by firms.

The government recently announced that there will be a £40 billion package developed in order to support businesses in the UK, likely to come into force from October. There are two potential options to implement this package - either through a unit price reduction that all energy suppliers must offer businesses, or alternatively implementing a set unit price that businesses will pay for energy. The government plans to reimburse energy suppliers for their losses as a result of the package, and will undertake quarterly reviews of business energy prices.

Businesses that are considered ‘vulnerable’ - predominantly those in the hospitality sector - will receive further support after the initial six months. Three months into the initial six-month period there will be a review to identify where the extra support needs to be targeted.

The limited impact of freezing prices

The short-term freeze of the energy price cap for businesses will be of limited benefit; whilst bills will still remain high, they will be more affordable than they would have been before the new cap was introduced by then-PM Truss.

UK businesses are not currently subject to the Ofgem price cap, which means that their energy bills are at risk of significant inflation after the initial six-month cap due to unpredictable fluctuations in the market.

Most businesses will likely be able to continue to trade in the short term, however, there is uncertainty that remains once the cap expires in April 2023. The news may not be as reassuring for some, as planning for the future will be much more difficult to prepare for if prices are set to increase once again.

Smaller businesses will struggle to absorb the increasing costs, and therefore there remains a risk of significant job losses as a result.

If your business is facing unsustainable energy costs this winter, please contact our team for professional support and guidance.


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