Derek Thomas is MP for West Cornwall & the Isles of Scilly.
We are the party of business. This is an undeniable truth when you look at this government’s track record of support for British business. At the most recent Budget we delivered a £14 billion package of support on business rates, reducing the operating costs of pubs and shops on our high streets. We are enabling businesses to invest through the expansion of the Annual Investment Allowance, the introduction of the Super Deduction and, following Putin’s illegal invasion of Ukraine, we stepped up again to help businesses and households with their energy bills.
The Chancellor recently revised the support available to businesses for their energy bills, reducing the value of support from £18 billion to £5 billion. This was a tough decision, but important. It is right that we do not overexpose the public finances to wholesale energy price volatility and we need to be realistic about the cost of energy being higher for businesses in the future.
Where the Treasury has fallen short is that the reduced energy support for business (called the Energy Bill Discount Scheme) is not being targeted at the most vulnerable businesses. If the Chancellor doesn’t review how to target this support and strong-arm big energy suppliers into allowing the renegotiation of contracts, I fear we will lose credibility with businesses facing eye-watering energy bill increases in April 2023.
Businesses in my constituency and across the country which negotiated their energy contracts in the second half of 2022 are extremely vulnerable. They entered new fixed contracts at a time when wholesale energy prices were at their peak. Energy suppliers also had significant leverage over businesses at this time as they were desperate to secure deals and were actively encouraged to do so by the government. I also fear that the lack of effective regulation and reform of the energy market by Ofgem meant energy suppliers saw an opportunity to inflate energy bills through increased standing charges and restrictive contractual terms.
For the rural shop, pub, or Post Office, facing a fourfold increase in their energy bills, their business model is no longer sustainable. I heard first-hand from rural shops about the challenges they face from rising energy bills in Parliament at the launch of the Rural Shop Report. Many are considering reducing staffing levels, removing services, and delaying investment to contend with rising energy costs. If we value the essential services that they provide in our communities then we need to act now.
So, what is the answer? Here are my recommendations to Chancellor for his forthcoming Budget:
- For too long we have not addressed the power wielded by energy suppliers over non-domestic energy customers. We can change that now by forcing energy companies to review energy contracts negotiated by businesses during the second half of 2022, an approach widely supported by the business community. I am not proposing a universal right to exit energy contracts – that would unfairly punish energy suppliers – instead energy suppliers should offer vulnerable businesses the option to blend and extend their existing contracts to better reflect lower wholesale energy prices. Businesses coming into the last months of their contracts should be able to exit and seek a better deal based on thankfully lower wholesale prices. These should form part of Ofgem’s recommendations for reform of the energy market request by the Chancellor at the next Budget.
- Target the £5 billion Energy Bill Discount Scheme at the most vulnerable businesses. Energy suppliers will be able to easily identify contracts negotiated between July and December 2022 and if the wholesale energy cost exceeds the government’s cap, the Government should target support at these businesses so they can see out their energy contracts and continue trading. I do not deny the administrative complexities of targeting support but we should make every effort to ensure money from the public purse is being spent effectively.
- Facilitate businesses to invest in energy efficient equipment. We already have a good track record in this space, with many green tax reliefs and VAT reductions on energy saving materials. But we must go further at the Budget. I know the Prime Minister is personally supportive of enabling this type of investment and understands this is a fundamental element of managing structurally high energy costs and meeting our net zero targets.
If we want to continue to be the party of businesses, we need to support those most at risk by enabling them to bridge the unprecedented cost increases seen in 2022. We have been exemplary in our support for business, we must not fall at the last hurdle. If, as the Chancellor said in his recent speech, he truly wants businesses to be enterprising, employing people, supporting education, and delivering everywhere, he will need to look at the fifth ‘E’ in the Budget: energy bills.