Hospitality faces '£4.5bn bill hike' as Government slashes energy support

Wholesale gas and electricity prices are currently fixed for all non-domestic customers under the Government's Energy Bill Relief Scheme, which is set to expire at the end of March. Now it has been confirmed that this will be replaced by a scaled back Energy Bills Discount Scheme, which will see firms get a discount on wholesale prices rather than costs being capped.

It comes after the Chancellor of the Exchequer, Jeremy Hunt, told ​​business leaders last week that the current level of energy support is 'unsustainably expensive'​​. 

Running from 1 April 2023 to 31 March 2024, eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill under the new discount scheme, except for those benefitting from lower energy prices.

The Government says the new scheme will help businesses locked into contracts signed before recent substantial falls in the wholesale price manage their costs and provide others with reassurance against the risk of prices rising again. 

“Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine,” says Hunt.

“But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.”

A 'substantially higher' level of support will be provided to businesses in sectors identified as 'being the most energy and trade intensive', which are primarily those involved in manufacturing. Businesses in scope will receive a gas and electricity bill discount based on a supported price which will be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.

An '​unsustainable​' price hike for hospitality​

Trade body UKHospitality has warned the new, lower level of support received under the Energy Bills Discount Scheme will see a total £4.5bn hike in bills for the sector.

“This will simply be unsustainable for many,” says Kate Nicholls, chief executive of UKHospitality. 

“While I’m relieved the Chancellor has listened to UKHospitality’s concerns and extended the scheme as a whole, the absence of a sector-specific package that helps vulnerable sectors like hospitality will still result in higher bills.

“With no further, dedicated support for a vulnerable sector like hospitality, I’d urge the Government to consider other measures it can take to help the sector.”

One measure in particular that Nicholls claims would make a significant difference would be increasing the business rates relief cap. 

“For those suppliers to hospitality in the wider food and drink sector that have received additional support, we expect them to support the sector accordingly in their pricing,” she adds.

Cracking down on supplier bad practise​

As well as announcing the new Energy Bills Discount Scheme, the Government has also confirmed that the Chancellor has written to Ofgem asking for an update in time for the March Budget on the progress of its review into the non-domestic market.

Ofgem announced back in November that it was to investigate reports from some businesses about bad practice from energy suppliers.

In a letter to non-domestic suppliers calling out examples of ‘non-domestic customer harm’, the regulatory body said it had been on the receiving end of reports about the lack of offers for new contracts, excessive security deposits, excessive charges for deemed rates, and delayed responses from suppliers to customers.

Nicholls says that now there has been some clarity on the future of energy support, the sector must see a concerted change in behaviour by energy suppliers who she accuses of unfairly treating businesses with outlandish quotes and unjustifiable demands for enormous deposits or pre-payments. 

“This scheme is a significant investment from the Government and energy suppliers should not be using that as an excuse to hike up prices,” she says.

“The Ofgem review into the non-domestic market should serve as a wake-up call to suppliers that now is the time to be reasonable with the quotes they’re offering and to abandon unfair demands of businesses to secure fixed deals. They should also consider allowing businesses to renegotiate if they are stuck on previously agreed, inflated fixed deals.

“This is an extremely challenging period for the UK’s hospitality sector, which is so important to the economy and communities, and it’s essential the sector gets through it as best it can. If it does, I’m confident we can reach a situation where hospitality will return to generating economic growth, delivering hundreds of thousands of jobs, and investing in Britain’s high street and communities. This is all while it contributes billions to Treasury revenues.”