Non-domestic Energy Support
Debate between Roger Gale and James Cartlidge(1 year, 10 months ago)
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The Exchequer Secretary to the Treasury (James Cartlidge)
With permission, Mr Deputy Speaker, I will make a statement on how the Government are continuing to support businesses, charities and the public sector with their energy bills. Before I outline how we are helping businesses, I remind the House why we are in this position.
Although wholesale energy prices are now falling, some businesses are still exposed to higher energy bills after Putin’s illegal invasion of Ukraine pushed prices far above their historical averages. Putin’s military aggression has put households and businesses across Europe and beyond under serious financial pressure. For that reason, we have already provided a package of support for non-domestic users through this winter that is worth £18 billion, as per the figures certified by the Office for Budget Responsibility at the autumn statement.
The energy bill relief scheme gave a direct discount on energy costs for all eligible businesses. It lessened the shock of the immediate increase in prices; it gave businesses the certainty they needed to plan for the winter; and it is one of the most generous packages in Europe. It comes on top of our support for households, including the energy price guarantee worth £900 this winter according to the OBR, which further helped to support consumers and the businesses that rely on them. I remind hon. Members that that followed unprecedented business support during the pandemic.
The Government are proud to have helped businesses through a twin combination of unprecedented shocks that nobody could have expected a few years ago. We will always do what is necessary to keep the economy and the British people secure, which is why the Prime Minister has been clear that we will halve inflation this year to ease the cost of living and give people financial security before returning it to target. That is also why we unleashed the furlough scheme, which avoided 2 million forecast job losses; a groundbreaking vaccine roll-out, which saved lives and ensured the safe reopening of our economy; grants for pubs, shops and other retail businesses; and now, humanitarian and military aid to Ukraine as it fights for democracy, with the UK giving more than any other nation bar the US. All those steps have been right, but all have come at a significant combined cost, leaving our national debt standing at £2.48 trillion or 98.7% of GDP.
To secure the future of public services, we have committed to get national debt falling, including two new fiscal rules—that the UK’s national debt must fall as a share of GDP by the fifth year of a rolling five-year period, and that public sector borrowing in the same year must be below 3% of GDP.
As we look to the next steps in supporting businesses, it is therefore in our national economic interest that we chart a path to withdrawing such support and restoring fiscal sustainability, but in a sensible and fair way that strikes a balance between supporting businesses now and protecting taxpayers’ exposure to volatile energy markets. As my right hon. Friend the Chancellor said at the autumn statement, one of our key economic priorities is stability, and we cannot have stability without financial prudence. So all Members must recognise that there is a balance to be struck, and it is not sustainable for the Exchequer to continue to support large numbers of businesses at the current level.
No Government—no responsible, serious Government —anywhere in world can permanently shield businesses from this energy price shock, and we must cap the taxpayer’s exposure to volatile energy prices. We have also been clear throughout that such levels of support were time-limited and intended as a bridge to allow businesses to acclimatise. Firms need to adapt and invest in energy efficiency to remain viable, and as they do so, we will be at their side to help, including with £6 billion of additional investment to cut the UK’s overall energy use.
Yet we remain fully alive to the fact that businesses would be facing a cliff edge as support comes to an end. To avoid this, we are going to provide a further package of transitional support, so today I can confirm a new energy bills discount scheme for businesses, charities and the public sector. Up to £5.5 billion will be made available from the end of the energy bill relief scheme period on 31 March until 31 March 2024.
The Chancellor has been working with the key industry stakeholders to get this right. We heard that they needed a 12-month rather than six-month scheme. We have listened and, as a result, I confirm that we will be providing a year’s worth of support for all non-domestic bills beyond the current six-month scheme. This will give certainty and ongoing assistance to businesses locked into contracts signed before recent substantial falls in the wholesale price, and provide others with reassurance against the risk of prices rising again. It is different from the previous energy bill relief scheme, but provides long-term certainty for businesses and reflects how the scale of the challenge has changed since September last year.
From 1 April 2023 to 31 March 2024, non-domestic customers that have a contract with a licensed energy supplier will see a unit discount of up to £6.97 per megawatt-hour automatically applied to their gas bill and a unit discount of up to £19.61 per megawatt-hour applied to their electricity bill, except for those already benefiting from lower energy prices. This means a typical pub can expect a taxpayer-funded discount of up to £2,300 over 12 months and a typical small retail store will get up to £400 off its annual energy bill.
We also recognise that some businesses, especially intensive users such as major manufacturers, are highly exposed to both energy prices and international competition, which means they are unable to pass through or absorb all of these costs. I can therefore confirm that the Government are targeting a substantially higher level of support beyond April 2023 to energy and trade-intensive sectors, providing a major boost for the manufacturing sector. Businesses in scope will receive a gas and electricity bill discount based on a price threshold that will be capped by a maximum unit discount of £40 per megawatt-hour for gas and £89.10 per megawatt-hour for electricity. This discount will only apply to 70% of energy volumes. These firms will continue to be supported at source, based on a price threshold of £99 per megawatt-hour for gas and £185 per megawatt-hour for electricity. This means a typical medium-sized manufacturer would expect to receive nearly £700,000 of direct support over 12 months.
This comes on top of the £13.6 billion of support for firms with business rates over the next five years, a UK-wide £2.4 billion fuel duty cut this year and the protection from full corporation tax rises for businesses making profits of less than £250,000, with those making profits of less than £50,000—the vast majority—not facing any rate rise at all.
I have set out how this transitional support will reduce overall as a cost to the Exchequer while remaining significant at a time of elevated energy costs and providing certainty for a further 12 months. However, I have also been clear that, just as we withdrew covid support when we moved to a position of living with the pandemic following the success of our vaccination efforts, this energy support is deliberately transitional in nature. That means that in due course we will move unambiguously to a point where there is no universal support for businesses with energy bills from the taxpayer.
Ultimately, it is in the national economic interest that we move to a position where the Government do not routinely subsidise UK businesses. It is not for the Government to habitually pay the bills of businesses any more than it is for the Government to tell businesses how to turn a profit, and it cannot be that the taxpayer props up failing or unproductive firms. Instead, we must protect the forces of free enterprise and entrepreneurialism that have led to our economic success for generations. [Interruption.] Labour Members do not understand free enterprise and entrepreneurialism, and I do not think many of them have ever run a business.
The approach I have outlined today does just that: it is fair in balancing the needs of non-household energy users with the need for prudence and a restoration of competitiveness, and it shows that this Government remain committed to supporting businesses, charities and the public sector through these challenging times. I commend this statement to the House.
James Cartlidge
I am grateful to the hon. Lady. She asked what happened to the review. Well, I am making a statement about the results of the review, and the policy decisions that we have come to a conclusion on, based on the review and consulting all the key stakeholders in business and industry and also the voluntary sector, who I spoke to only this week.
The hon. Lady used the word “criminal” to describe the announcement today. I think that is a little over the top. We are continuing to provide significant support for businesses. We have a universal scheme, plus the targeted support for energy and trade-intensive sectors, with significant expenditure of up to £5.5 billion. We must balance this, however. She talked about failing to support business, but I remind the House that at this precise moment we are in the middle of a six-month scheme worth £18 billion, which is an extraordinary sum.
The hon. Lady said that we have somehow betrayed hospitality. The last statement I made, the day before the House rose for the Christmas recess, was that we would be freezing alcohol duty for another six months. We have supported pubs throughout the pandemic. To a typical pub, this will be worth about £2,300 in support over the next 12 months. Beer duty is now at the lowest real-terms level for 30 years, having been cut or frozen in nine of the last 10 Budgets, and spirits duty is at the lowest level in real terms since 1918, and of course we have extended the discount on business rates for the hospitality sector—previously it was 50% and we are increasing it to 75%. So there is a huge amount of support for hospitality.
The hon. Lady called for energy security. I agree that the long-term answer to this problem is investment in energy security; it is about having robust British energy, and we should look at the figures on that. Only a few days ago we heard from the BBC that in 2022 we had a record level of wind production in this country producing electricity: almost 27%, with just 1.5% from coal compared with 43% from coal in 2013. No other country is making that sort of progress. I am proud as an East Anglian MP to say that offshore wind has made a massive contribution; we have the largest array of offshore wind in Europe. We are delivering energy security and, as the Chancellor said in his statement, we are going to keep doing it, investing in nuclear and putting other investment in place, backing contracts for difference.
I will make one final point. A few days ago the Leader of the Opposition said that it was no longer the time for the big Government cheque book and that we need to put the cheque book away. I am not sure that his Front-Bench Members have got the memo, because there is a balance to be struck here: we need fiscal prudence. The underlying problem for the country is inflation: inflation is the reason why people are experiencing cost of living problems. If we want to get a grip of inflation, we need to set a path for fiscal sustainability, because the problem with what the hon. Lady is suggesting is that it implies not just getting the Government cheque book out again, contrary to the words of the Leader of the Opposition, but getting a blank cheque book out. The problem with that is that if a Labour Government start writing blank cheques, we know where that ends up: with them writing a letter saying there is no money left, and bankrupting the country. We must balance prudence with supporting businesses and the voluntary and public sectors with their energy bills. We have done that today as a result of our review, and I believe this is the right balance of policy for the House.
Harriett Baldwin (West Worcestershire) (Con)
I welcome the Minister’s announcement. He rightly points out that President Putin has, by illegally invading Ukraine, effectively weaponised the cost of energy against western economies, and he is right to highlight that we have been able to withstand that attack with £18 billion of support over this six-month period.
We now have a gas price close to where it stood before the invasion of Ukraine, and businesses across the country have realised the big risk they face in terms of their energy costs. Will the Minister encourage them not to pass on the cost of higher energy through inflation to their customers, and instead call for the wholesale price of energy to feed through more swiftly to the retail price our businesses pay?
James Cartlidge
I think this is the first time I have taken a question from my hon. Friend since her appointment to the chairmanship of the Treasury Committee and I congratulate her belatedly on her success. She makes the good point that wholesale prices have fallen significantly. The gas price is back to where it was before the invasion. Of course, we should be clear that before the invasion it was still elevated in relative terms historically, not least because there was an increase in energy prices following the reopening of the economy after the pandemic. Of course, we do not want prices to be passed on to customers in terms of inflation—that is the last thing we want to see—but I should stress that one reason why we are giving extra support to energy and trade-intensive sectors is that, because they tend to trade internationally, they are particularly exposed to those price pressures and find it harder than other companies that are energy intensive but not trade exposed to pass on those high prices.
James Cartlidge
My right hon. and learned Friend asks an excellent question. Through the review, we have heard of issues in and around the pricing and availability of non-domestic tariffs, including increased standing charges, prohibitive contract renewal terms such as those he referred to and, in some cases, decisions by individual suppliers to withdraw from supplying particular sectors. Ofgem and the Department for Business, Energy and Industrial Strategy are working urgently to understand those issues, and Ofgem is launching a deeper review of the market. I can confirm that today, the Chancellor has written to Ofgem, asking it to do that work with the utmost urgency and to update him in time for the Budget. The Government recognise the importance of that work to many pubs, restaurants and other businesses that feel they are not getting a fair deal from their suppliers.
Mr Deputy Speaker (Sir Roger Gale)
I call the Chair of the Business, Energy and Industrial Strategy Committee.