MPs have raised concerns that the government’s energy bailout for businesses will see corporate giants handed huge discounts they do not need.
The government on Wednesday announced a package of support including a cap that will halve the unit price paid for energy from 1 October to help companies, charities and public sector organizations, including schools, get through the winter. One estimate puts the cost of the scheme at £25bn.
However, fears are growing in Westminster that the blanket nature of the bailout will see huge businesses who could stomach the spike in energy costs this winter handed discounts they do not need.
Darren Jones, the Labor MP who chairs the business, energy and industrial strategy select committee, said: “Capping the price for all businesses is a waste of taxpayers’ money, which should be targeted at those which need it the most. Why should British taxpayers collectively get into even more debt to hand over public funds to Amazon?”
Labor MP Charlotte Nichols said: “The government shouldn’t be profligate with taxpayers’ money and, frankly, a price cap set at the same rate for all businesses is just a huge corporate handout to businesses that won’t need it, rather than targeting support at those that will.”
Carla Denyer, co-leader of the Green party, said the scheme needed to prioritise energy efficiency and be “more targeted than just a blanket cap on wholesale energy costs”.
Denyer said: “Many small businesses will need help with reducing their energy costs. We would provide companies with grants towards the new energy-efficient equipment.
“For larger businesses who can afford it, I would like to see government energy bill support conditional on detailed and credible plans to improve their energy efficiency and reduce carbon emissions over the next few years.
“That way, rather than a short-term sticking plaster, it’s an incentive for businesses to make lasting improvements that will benefit the climate and their own productivity.”
The government has said it will set conditions on companies taking other forms of support. Earlier this month, the Treasury and the Bank of England announced a £40bn fund to help energy traders with liquidity if they agree to a set of conditions that have not yet been set out. These could include restraint on dividends and executive bonuses.
During the pandemic, large retailers including Tesco and Sainsbury’s handed back business rates relief to the Treasury after a public backlash.
On Wednesday, the business department announced a “supported wholesale price” – expected to be £211 a megawatt hour for electricity and £75 a MWh for gas – which it said would be less than half the wholesale prices anticipated this winter.
The cap means that electricity prices for business customers will still be about double what they were in October 2021, when the price per MWh was £117, but more than half the forecast winter prices of about £540.
Businesses will not need to take any action as the discounts will be automatically applied to their bills.
The changes will apply to new contracts from 1 October and to fixed contracts taken out since 1 April.
The government said those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the supported price and the average expected wholesale price over the period of the scheme. The amount of this discount is likely to be about £405 a MWh for electricity and £115 a MWh for gas.
For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract.
The government vowed to publish a review into the operation of the scheme in three months as it studies whether to extend the support beyond next March.
The cost to the government is unknown as it will depend on wholesale energy markets. However, the consultancy Cornwall Insight estimated it will cost £25bn while Investec forecast £22bn to £48bn. The government is expected to lay out the cost in Friday’s fiscal statement.
The government also plans to introduce legislation that ensures landlords pass on a £400 energy rebate to customers with all-inclusive bills.