'Devil in the detail' of business energy cap

Businesses have broadly welcomed the UK Government's promise of a scheme to lessen the financial pain of soaring energy prices, but complain that they are still in the dark about details of the rescue plan.

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David Sapsted

9 September 2022

Prime Minister Liz Truss announced on Thursday that, in addition to a two-year programme of financial help for domestic users, there would be a comparable, six-month scheme for businesses.

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'Sparse on details'

The scheme, she said, would be reviewed after three months and that there would be additional help for "vulnerable" sectors at the end of the six months. However, no details of the scheme were offered.Martin McTague, National Chair of the Federation of Small Businesses (FSB), said that while firms would be reassured by the Prime Minister's announcement, they would need to know exactly how the scheme would operate to enable them to plan for winter.“It’s a huge relief for millions of small businesses to hear confirmation they will be part of the Government’s plans to help on energy," he said. "Many have been pushed to the brink by crippling energy bills, and so it is welcome that help is on the way. “However, the announcement is very high-level and sparse on detail, so we will be working with the new Government to clarify what happens next. Small businesses’ instant reaction is that this is not enough information, yet, for them to plan.“Our work on the vulnerability of small businesses to energy costs has revealed huge bills causing damage in virtually any sector that uses energy in any meaningful way, just like most households. Any future definition of ‘vulnerable industries’ will need to be broad, realistic and fair."

Doubling down on net zero

Rain Newtown-Smith, Chief Economist at the Confederation of British Industry (CBI), welcomed the Government's "bold and decisive" action to cap energy prices for households, but said the "devil will be in the detail" of the scheme for businesses.She said Ms Truss's announcement would help firms across the economy facing "sky-rocketing" energy prices this winter.However, Ms Newton-Smith added: "The devil will now be in the detail to come. Government, businesses and energy suppliers must work together to ensure the support pledged gets to firms quickly.“This energy crisis is not impacting all firms equally, so it’s encouraging that more targeted measures are to be introduced for businesses in sectors that are most at risk.“Despite these tough times, business remains in no doubt that doubling down on net zero is the route out of this crisis, the way we grow our economy and the way we make ourselves more energy resilient for the future.”John Geldart, Director-General of the Institute of Directors (IoD), felt it was particularly encouraging that the Government cap on household bills would put downward pressure on consumer price inflation, "which has been top of the business worry list for the best part of a year". He also welcomed the new Government’s commitment to achieving existing net zero targets, and the announcement of a long-term review of energy regulation.Mr Geldart added: “What we need now is an external reassurance that the scale of the intervention does not jeopardise the public finances. That’s why it’s crucially important that the Office for Budget Responsibility can swiftly produce its independent assessment of the impact on Government debt and the wider macro-economy.“We also want to see greater support for smaller businesses trying to accelerate their own path to net zero. We would hope that the anticipated policy work on how our climate targets can be achieved in a ‘pro-growth’ way, as the Prime Minister announced, can include such an assessment as a priority.”

Certainty, but challenges remain

Shevaun Haviland, Director-General of the British Chambers of Commerce (BCC), said the proposed energy price cap for businesses would give businesses some financial certainty over the next six months.“However," she said, "given the other challenges still facing business on labour shortages, supply chain disruption, and rising raw material costs, it is unlikely that we will see greater investment from business in the short term.“If we are to truly revitalise our economy for the difficult months ahead, then there must be a clear long-term plan that gives business the confidence to grow.”