Government Announces Energy Price Cap for Businesses

The government has just revealed the details of its “Energy Bill Relief Scheme” for businesses. The package will cap wholesale energy prices for all non-domestic customers at less than half what businesses had expected to pay for the next six months. The new cap is now £211 per MWh for electricity, and £75 per MWh for gas. BEIS say this will roughly align the plan with the domestic policy already announced.

Business Secretary Jacob Rees-Mogg said:

“The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support. This, alongside the measures we are taking to boost the amount of domestic energy we produce to improve both energy security and supply, will increase growth, protect jobs and support families with their cost of living this winter.”

A recent research note from economists at Deutsche Bank suggests that the energy price cap will be deflationary and the astronomical cost of the cap will be offset by tens of billions saved on inflation-linked payments due to be made by the government such as pensions, wages and inflation indexed gilts. Counter-intuitively this state subsidy saves the state, to some degree, in other areas.

A review into how the scheme might continue is set for March 2023. In the meantime the government says it’s looking at other ways to “reduce wholesale energy costs” and help vulnerable sectors beyond the six month cap. Full steam ahead…

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