Current inflation is being driven by rising energy costs, provoked by surging demand after the pandemic as well as Russia’s invasion of Ukraine, which in turn has put pressures on living costs.
I want to reassure you that I take this issue very seriously and the Government recognises the impact rising energy prices have on businesses of all sizes. I welcome that Ofgem and the Government are in regular contact with business groups and suppliers to understand the challenges they face and explore ways to protect businesses.
I welcome that the extensive engagement continues across government at both a ministerial and official level on this situation to understand, and to help mitigate the impacts of this issue. The Government’s priority is to ensure costs are managed and energy supplies maintained.
As you may be aware, the Government will bring forward emergency legislation to establish a new Energy Price Guarantee which will ensure that the average British household pays no more than £2,500 per year for their energy bills for the next two years from October.
Businesses will be offered an equivalent guarantee for six months for those hit by rising prices, and after those six months we will provide further support for vulnerable sectors, such as hospitality, including our local pubs. We will work with businesses to review where this should be targeted.
This is not an issue of supply – the United Kingdom benefits from having a diverse range of gas supply sources with capacity that can more than meet demand and no one should expect supply emergencies to occur this winter.
I realise that these high prices might have significant implications for businesses. Ofgem, the independent energy market regulator, has robust policy in place to protect commercial customers. If a business’ energy supplier fails, Ofgem’s safety net will ensure continuity of supply and identify a suitable new supplier through a competitive process. A business will then be able to view different tariffs before committing to a new contract. A business on a longer term contract may have little exposure to the current high wholesale prices, however, companies without longer-term contracts may face higher costs.
Ofgem advises companies to compare suppliers to find the most competitive prices. Ofgem makes several other recommendations for companies facing energy price issues, such as contacting their supplier to agree a payment plan and to check for business finance schemes from suppliers, the Government or local authorities.
I appreciate that many would like to see a commercial energy price cap introduced to support businesses in the face of high prices, however I am unaware of any plans to do this.
Furthermore, I am not aware of any plans for an energy tax relief. However, I have passed the comments raised on to colleagues at the Treasury so that they are aware of the strength of feeling on this issue. Any decision to modify our tax regime is a matter for the Treasury and careful consideration will be given to any proposed amendments to taxation. I understand that the Government keeps all taxes under review, and that any changes to taxation will be announced in the next Budget. I shall be following the developments on this issue closely, and I will ensure my colleagues at the Treasury are aware of the strength of feeling on this issue.
Finally, charities and non-profit organisations are entitled to a VAT reduction of 15 per cent on energy used for non-business purposes, as well as exemption from the Climate Change Levy which also reduces bills by 5 per cent.