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Ministers reveal billion-pound limit on gas and electricity bills

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Liz Truss vowed to help businesses through the winter today when she unveiled a massive intervention in the energy market to curb prices.

The prime minister announced that wholesale costs would be kept at half their forecasted seasonal peak at a cost expected to be tens of billions of pounds amid fears of economic turmoil.

The new energy bill reduction scheme offers a discount on wholesale costs for all non-domestic customers from October to March next year, after which further targeted assistance is promised.

The government has set a supported wholesale price – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half of wholesale prices expected this winter – to lower the bills. It will also be applied retroactively to contracts agreed on or after April.

Ms Truss said in New York that the original arrangement will “apply from Oct. 1 to ensure that businesses have that certainty through the winter.”

“We know that companies are very concerned about their energy bills,” she added.

‘That is why we are introducing a scheme for companies that is comparable to the scheme for households to ensure that companies can survive the winter.

“We’re going to review it after six months. We will ensure that the most vulnerable companies such as pubs, such as shops, are also supported afterwards.’

Prime Minister Liz Truss announced that from October there will be a ceiling that will halve wholesale costs until March next year at the earliest. It will also be applied retroactively to contracts agreed on or after April.

How the price cap works

The government will pass emergency legislation to support the new emergency relief scheme once parliament returns from its break from party conferences in October.

For customers with fixed price contracts, if the wholesale element is above the new government cap, the unit price is automatically reduced for the duration of the settlement.

Customers with standard, assumed or variable rates will receive a discount per unit up to the difference between the government rate and the average wholesale price over the period – the maximum discount is expected to be around £405 per MWh for electricity and £115 per MWh for gas .

For customers with flexible purchasing contracts, usually those with the highest energy needs, the discount level is calculated by suppliers, with the same maximum discount.

A parallel scheme will be set up in Northern Ireland.

The government gave the example of a cafe that consumes 4 MWh of electricity and 16 MWh of gas per month:

  • They signed a permanent contract in August 2022, leaving them with a current monthly utility bill of around £7,000. At the time of signing their contact, wholesale prices were expected to exceed the government-supported price of £211/MWh for electricity and £75/MWh for gas for the next six months, meaning they could support receive under this scheme.
  • The difference between the expected wholesale prices when they signed their contract and the government backed price is worth £380/MWh for electricity and £100/MWh for gas, meaning they get a discount of £3,100 per month, reducing their bill. by more than 40 per month. cent.

It is the first of a series of economic interventions expected this week, with Chancellor Kwasi Kwarteng running a mini-budget Friday.

The savings will first be seen in October bills, which are typically received in November.

It follows an announcement two weeks ago by Liz Truss that household bills would not rise above £2,500 for the next two years.

It is estimated that the two schemes will mean that the state will pay more than £1 for every £3 of gas consumed. The industry figures, obtained by ITV News, suggest companies will be charged a guaranteed maximum price of £2.93 per therm, with taxpayers having to make up the difference from the expected market price of £4.67.

Kate Nicholls, chief executive of UKHospitality, said: ‘This intervention is unprecedented and it is extremely welcome that the Government has listened to hospitality businesses as they face an uncertain winter.

“We especially like its inclusiveness – from the smallest companies to the largest – all of which together create a huge number of jobs, which are now much more secure.

“The cabinet has recognized the vulnerability of the hospitality industry as a sector and we will continue to work with the cabinet to ensure that there is no cliff edge if these measures are removed.”

The family scheme allows families to charge a maximum of £2.93 at an expected market price for the following year of £4.32.

Yesterday Ms Truss pledged long-term support for businesses: ‘We will ensure that businesses are protected from the very high prices that have been forecast. I can reassure people who own pubs that those are exactly the kinds of businesses that will get support in the longer term.’

Last week, it emerged that companies had not been given any details or figures about the incoming package, despite many seeing significant price increases starting next month.

Hospitality groups have urged Mr Rees-Mogg to bring clarity to businesses both small and large with the announcement, which is his first in his new position. Last week, No. 10 tried to allay fears over the lack of details in the announcement, with a spokesperson confirming that the aid would be implemented retroactively to October 1, if necessary.

He added: ‘We have acknowledged that there are concerns about the support, but what we are saying is that we will provide the support to cover their October bills. We are still looking into whether legislation is needed.’

The delay was attributed to the fact that each intervention plan had to be built from scratch.

The government will pass emergency legislation to support the new emergency relief scheme once parliament returns from its break from party conferences in October.

For customers with fixed price contracts, if the wholesale element is above the new government cap, the unit price is automatically reduced for the duration of the settlement.

Customers with standard, assumed or variable rates will receive a discount per unit up to the difference between the government rate and the average wholesale price over the period – the maximum discount is expected to be around £405 per MWh for electricity and £115 per MWh for gas .

For customers with flexible purchasing contracts, usually those with the highest energy needs, the discount level is calculated by suppliers, with the same maximum discount.

A parallel scheme will be set up in Northern Ireland.

Company Secretary Jacob Rees-Mogg will provide details on a six-month scheme to help businesses affected by rising energy costs

Company Secretary Jacob Rees-Mogg to provide details on a six-month scheme to help businesses affected by rising energy costs

Shevaun Haviland, director general of the UK chambers of commerce, said: ‘For months we have been calling for government intervention to help businesses with their dazzling energy bills. This support package is significant and will ease the cost pressures that have piled up on businesses.

“This will allow many companies that have faced closure, had to lay off staff or have had to cut production to make it through the winter.

But the exact level of support will vary widely from company to company depending on the details of the contract, so some will inevitably do better than others.

“We need to act now to pass these savings on to the business community as quickly as possible – every day some companies will get closer to the edge and they won’t be able to last much longer.”

Guy Adams, who runs the Isle of Barra Beach Hotel in the Hebrides, said he got a 377.66 percent increase in his utility bills, which “probably would have killed us.”

He told BBC Radio 4’s Today programme: ‘It wouldn’t have been just that one bill, all our suppliers would have gotten about the same.

‘The cost would have gone so far as to say our cheapest room rate is currently £110 a night, we should have increased that to £415 a night – that would literally be the cheapest rate and there are just no people who would pay that kind of money. ‘

He added that “what the government will not allow” is that his seasonal hotel will close at the end of this month and that he is in an “absolutely impossible situation” to set prices for bookings for when it is due to reopen in May.

He told the program: ‘The fact that it’s being revised in six months is not practical and it will still raise rates significantly more than people would be willing to pay.

“They will pay rates they would expect to pay in London. They won’t pay the rates they expect to pay in the Hebrides.”

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