Action needed at Spring Budget to keep the lights on

With the government’s energy support packages due to be reduced from April, many eyes will be watching the Spring Budget to see if Chancellor Jeremy Hunt can offer businesses and households help in keeping the lights on.

Non-negotiables

Energy was one of the four ‘non-negotiable’ goals set out by the British Chambers of Commerce (BCC) recently. The business group says the Chancellor must hit these goals during his Spring Budget. It says the four goals of energy costs, business rates, childcare and green funding must be solved to unlock firms' growth potential.

The new Energy Bills Discount Scheme (EBDS) will come into force in on 1 April. Under the scheme, firms will get a discount on wholesale prices rather than costs being capped as under the current one. Bills will automatically be discounted by up to £6.97 per megawatt hour (MWh) for gas bills and by up to £19.61 per MWh for electricity bills.

However, the BCC says the Chancellor must do more at the Spring Budget to provide funding to help businesses become greener and more energy efficient.

Cannot pay energy bills

Shevaun Haviland, Director General of the BCC, said:

The last three years have put UK business under huge stress, and we urgently need to see coherent policies from government that set the economy on a path to growth.

But everywhere they turn, businesses see barriers to investment and expansion. They cannot get staff, they cannot pay their energy bills and business rates, they cannot get decent loans or easily shift to greener technology and systems.

Chambers are already developing their own accelerators to help firms invest in greener and more energy efficient technologies and systems, but government needs to do more.

These measures could transform the landscape for hard-pressed businesses and free them from the shackles that are binding our economy.

First step

The Confederation of British Industry (CBI) also wants to see Mr Hunt act on energy support to boost business confidence.

In its Spring Budget submission, the business group said that although the EBDS provides a ‘welcome buffer’ to many businesses assessing the challenges of next winter, it is ‘just the first step’.

The CBI says that now is the time ‘need to break the high-cost cycle through energy efficiency’.

It wants the government to help reduce bills and emissions for business by extending the Industrial Energy Transformation Fund from 2025 to 2030, and by launching ‘Help to Green’ vouchers for small and micro businesses.

Chain of events

Louise Hellem, the CBI’s Director of Economic Policy, said

It’s no secret that the crisis in Ukraine has set off a chain of events that has led to sky high energy costs for businesses and households.

Prices are highly likely to remain elevated next winter too, so helping businesses of all sizes to invest in energy efficiency will be invaluable come later in the year. Our proposals will help boost domestic energy security and supply.

EPG changes

Household also face changes at the beginning of April. The Energy Price Guarantee (EPG) was introduced from 1 October 2022 at a typical £2,500 a year and was due to run for two years.

In the Chancellor's Autumn Statement, it was announced that from 1 April 2023, the EPG would rise to a typical £3,000 a year until 31 March 2024.

This increase in the EPG coincides with the end of the Energy Bills Support Scheme, which saw millions of households receive £400 in energy credit over six months in winter. According to the MoneySavingExpert (MSE) website, the two changes combined will see many facing an effective annual price hike of 40%.

Practical and fair

The changes have promoted consumer champion and MSE founder Martin Lewis to write to the Chancellor urging him to keep the EPG at a typical £2,500 a year.

In the letter, Lewis asked the Mr Hunt to ‘urgently consider postponing that increase’.

The letter continues:

While the EPG isn't perfect, as it's not targeted, it is the method the government currently uses to support people.

Postponing the increase is a practical and fair decision, with household energy bills already double what they were the prior winter. Crucially, the damage to people's pockets and mental health of another round of energy price rise letters is disproportionate.

Without intervention, and soon, the charity National Energy Action predicts that the number of fuel poor households will rise drastically from an already shocking 6.7 million to 8.4 million from April – approaching double the 4.5 million households in this position in October 2021. That is a frightening statistic.

Under review

Despite the letter receiving the backing of over 30 charities, as well as Energy UK, the trade association for the energy industry, Mr Hunt looks unlikely to grant households extra support at the Spring Budget.

The Chancellor says that the Treasury kept all support ‘under review’ but he did not think the government had the ‘headroom to make a major new initiative to help people’.

Spring Budget

The Chancellor will deliver the Spring Budget, alongside a forecast from the independent Office for Budget Responsibility (OBR), on 15 March. 

Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of digital and printed products.