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The UK Government announcement on energy price support for smaller businesses is a major blow to island businesses, says the Federation of Small Businesses’ Highlands & Islands Development Manager, David Richardson.

Speaking yesterday (Tuesday January 10) Mr Richardson said: "Yesterday’s announcement about the changes to energy support for smaller businesses will have sent a ripple of fear through many businesses in the Western Isles and the wider Highlands & Islands.

“The reduced support is very obviously going to hit smaller firms’ pockets hard, for it is totally insufficient for all, and especially for energy-hungry businesses like those in tourism & hospitality, food & drink processing, manufacturing, and so on.

“Not only that, but the FSB has repeatedly warned the UK Government about the consequences of having a cliff edge when the current support comes to an end on the 1st of April.

"In particular, we pointed to our own FSB research, undertaken before yesterday’s announcement, which found that a quarter of smaller businesses across the UK believed that they would need to close, downsize or radically restructure if a cliff edge were to happen. And here we are with a cliff edge, the capping stopping one day and the discounting starting the next.

“Moreover, the replacing of the energy price cap with a discount on the fluctuating wholesale price of the moment is not only inflationary, it destroys the certainty that businesses crave, and lack of certainty damages business confidence, which in turn stifles investment and is bad for the Highlands & Islands economy. We live in extremely difficult times.”

The new energy scheme for businesses, charities, and the public sector was confirmed on Monday (9 January), ahead of the current scheme ending in March. The new scheme will mean all eligible UK businesses and other non-domestic energy users will receive a discount on high energy bills until 31 March 2024.

This 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.

The UK government says it provided an unprecedented package of support for non-domestic users through this winter, worth £18 billion per the figures certified by the Office for Budget Responsibility at the Autumn Statement. This is equivalent to the cost of an increase of around 3p on people’s income tax.

The government has been clear that such levels of this support, unprecedented in its nature and huge scale, were time-limited and intended as a bridge to allow businesses to adapt. The latest data shows wholesale gas prices have now fallen to levels just before Putin’s invasion of Ukraine and have almost halved since the current scheme was announced.

The new scheme therefore strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets, with a cap set at £5.5 billion. This provides long term certainty for businesses and reflects how the scale of the challenge has changed since September last year.

The Chancellor of the Exchequer, Jeremy Hunt, said:

"My top priority is tackling the rising cost of living – something that both families and businesses are struggling with. That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.

"Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine. 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.

"Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is action is needed to make sure the market is working for businesses.

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, except for those benefitting from lower energy prices.