‘Temporary’ government energy bill support does not avert risk of insolvency for UK businesses

Businesses could be left at risk of insolvency if energy costs continue to rise into next year, despite to the UK government’s “short and temporary” support aimed at helping non-domestic customers with their bills, risk experts have warned.

Business secretary Jacob Rees-Mogg revealed new support last week (21 September 2022) for businesses and public sector organisations facing rising energy bills across the UK.

The government’s new Energy Bill Relief Scheme will provide non-domestic customers – including UK businesses and voluntary/public sector firms like charities, schools and hospitals – with a discount on wholesale gas and electricity prices.

The support will be equivalent to the Energy Price Guarantee put in place for households, which was announced earlier this month (8 September 2022) and will be automatically applied to bills.

To administer this, the UK government has set a Supported Wholesale Price, which is expected to be £211 per MWh for electricity and £75 per MWh for gas – less than half the wholesale prices originally anticipated this winter.

The discount will be available for fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts.

It will apply to energy usage from 1 October 2022 to 31 March 2023 and will run for an initial six-month period, Rees-Mogg announced.

Although Atradius risk expert Owen Bassett acknowledged that the discount will “help ease the worries of businesses across the UK”, he said insolvency remained a risk for non-domestic customers if costs were to “hike back up in March 2023, after the reduced fees”.

He explained: “As things stand it’s not entirely clear what this means for the spectrum of different industries beyond the six-month mark.

“Although the discounted rates are less than half the wholesale prices previously anticipated for this winter, there are still other concerning overheads for businesses right now adding financial pressures.

“The rising supply chain costs are still being felt due to knock-on effects of the war in Ukraine – for example – and there is a looming recession cutting customer expenditure in retail and hospitality sectors too.”

Trusted advisors needed

From an insurer perspective, Aviva UKGI distribution and SME managing director Gareth Hemming, said: “We understand that businesses may need to make choices about how they operate in the face of rising costs.

“We aim to be flexible in allowing our business customers to make changes to their policy to reflect this and believe the advice of brokers continues to be of huge value to businesses thinking about making changes to how they operate.”

Support for non-domestic customers who are off-grid and use heating oil or alternative fuels instead of gas will be announced shortly, in addition to a parallel scheme for Northern Ireland.

Although concern remains among risk experts and insurers, Prime Minister Liz Truss said: “I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods.

“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.

“At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”