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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Energy support for businesses to cost ‘tens of billions’, Rees-Mogg says; firms and schools fear cliff edge – as it happened

United Kingdom United States Kwasi Kwarteng Liz Truss Office for National Statistics US Federal Reserve
A powerline near Dungeness Nuclear Power Station, Dungeness, Kent.
A powerline near Dungeness Nuclear Power Station, Dungeness, Kent. Photograph: Jon Santa Cruz/REX/Shutterstock

Closing summary

Time to recap….

Britain is facing tens of billions of pounds of extra borrowing to cover the cost of protecting businesses, public sector organisations such as schools and hospitals, and charities from the full force of the energy crisis.

The UK government announced it will cap wholesale electricity and gas costs for non-domestic users at less than half the market rate expected this winter from the start of October.

The plan, two weeks after outlining protection for households, could avert a winter catastrophe for businesses.

The package will only initially last for six months – with further help potentially to be offered to vulnerable firms and organisations that need more support beyond March.

Under the plan, wholesale prices for electricity are expected to be capped at 21.1p/kWh, while gas would be capped at 7.5p/kWh – for those on existing fixed price contracts.

Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum amount.

Analysts at Cornwall Insight said the move would effectively reset the market back to last spring’s price levels, before the surge in wholesale energy prices this summer as Russia tightened the screw on Europe. They estimate it will cost £25bn.

Chancellor Kwasi Kwarteng said the plan would “stop businesses collapsing, protect jobs and limit inflation,”.

But the announcement, in a press release, meant MPs were not able to quiz ministers about the plan. Costing details could come in Friday’s mini-budget.

Business secretary Jacob Rees-Mogg told broadcasters that the final cost of the scheme would “unquestionably” run into “tens of billions” of pounds, but couldn’t give a precise amount – as it all depends how high electricity and gas prices rise this winter.

Investec estimate the plan could cost up to £48bn.

Business groups broadly welcomed the plan, saying it would help firms keep running through the winter.

But several groups warned that further help will be needed; Make UK, the manufacturers’ trade body, warned prices could “remain high for many months to come”.

Labour warned that the plan came too late for some businesses, saying the delay in providing support was ‘farcical’.

The package has also been criticised for not being better targeted. As Business, Energy and Industrial Strategy Committee Chair Darren Jones put it:

“Capping the price for all businesses is a waste of taxpayers’ money, which should be targeted at those which need it the most.

Why should British taxpayers collectively get into even more debt to hand over public funds to Amazon?”

However, Resolution Foundation points out that companies on long-term contracts, paying less than the government’s new cap, won’t quality for savings – reducing the total cost.

Geoff Barton, general secretary of the Association of School and College Leaders, said a six-month cap made it “impossible for schools and colleges to plan financially with any degree of confidence”.

Hospitality firms, nurseries and breweries all warned that ministers are creating a cliff edge in March 2023, when the cap will end.

Councils in England and Wales said they needed more help to get them though the cost of living crisis.

Here’s the full story:

And a detailed explainer:

In other news…

The UK borrowed almost twice as much as expected in August, at over £11.8bn, as soaring inflation pushed up the cost of index-linked debt.

The pound has hit a new 37-year low against the US dollar, at just $1.1325.

The foreign exchange markets were shaken by Vladimir Putin who has ordered Russia’s first military mobilisation since World War Two, and accused the West of nuclear blackmail.

The government has been warned that cuts to stamp duty will hurt first-time buyers and stoke an inflationary bubble in the property market – following reports that Liz Truss is planning to lower the tax to encourage growth.

Economists have called for a shake-up of the Bank of England’s monetary policy committee….

… which is expected to announce another increase in UK interest rates tomorrow. Could we see the biggest rise since the late 1980s?

The BoE is also been urged to condemn the government’s move to lift the cap on bankers’ bonuses – given its previous calls for wage restraint.

The GMB union argued that governor Andrew Bailey should speak out, asking;

“Will you denounce these plans for uncontrolled banker bonuses as a risk to inflation? Our members know that inflation is being driven by energy prices, profiteering and supply chain disruptions, not pay.”

The energy crisis has forced Germany to nationalise its biggest gas importer, Uniper, to avert a crisis as it battles energy shortages resulting from Russia’s war in Ukraine.

UK retailer Marks & Spencer is increasing staff pay for the second time this year and providing 4,500 employees with a £250 shopping voucher as part of a £15m package to help with the rising cost of living.

In a grim development, more than 5 million Britons have gone without food, according to new research that reveals people are skipping meals “just to keep the lights on”.

Nearly 11 million people are now behind on their bills, the Money Advice Trust reported.

Online gambling firm Betway has been fined more than £400,000 after its marketing material was found on the children’s section of the West Ham United website, including a page where young fans were invited to colour in a teddy bear.

And French telecoms billionaire Xavier Niel has acquired a 2.5% stake in Vodafone…which could herald a shake-up at the mobile giant.

Over in New York, Liz Truss has told executives at a business roundtable in New York that boosting the City of London will help to level up the UK.

Truss argued that promoting the financial sector (where the government controversially wants to lift the cap on bonuses) will actually help the rest of the country.

She said:

We want the City to be the most competitive place for financial services in the world, and we see that as a key part of the levelling up agenda, because when we unblock capital, that capital will be used across the UK to make every industry become more productive and competitive.

Andy Sparrow’s Politics Live blog has all the details:

Financial service group Investec have estimated that the non-domestic price cap could cost anywhere between £22bn and £48bn.

Investec economist Sandra Horsfield explains:

In the absence of official numbers, our utilities team tentatively suggest a range of £22bn-£48bn as a cost for the non-domestic energy support package over its initial six-month period.

Adding this to what may be a price tag of close to £90bn for household energy bill support, as per our utilities analyst, it is clear that the government is prepared to commit substantial amounts of government funding to provide support with surging energy prices. To put these figures into context, furlough for employees and the self-employed cost £97bn, close to 4% of GDP.

Thomas Pugh, economist at audit, tax and consulting firm RSM UK, warns that the UK still faces a recession, despite the government’s energy support.

Pugh agrees that non-domestic customers face a cliff edge next spring, which will deter firms from investing.

Energy prices for businesses were only frozen for six months at £211 per MWh for electricity and £75 MWh for natural gas. Given that electricity prices in April 2023 are currently around £360 per MWh, this could represent a cliff edge in spring after what will undoubtedly be an exceptionally tough winter.

That risks productive investment being deferred or cancelled and otherwise viable firms going bust, making the economy permanently smaller.

RSM estimates that the household energy bill freeze, announced a fortnight ago, means inflation will peak at 11% in October, not 15% in January as feared.

That means a less severe recession:

What’s more, the smaller impact on household incomes means that consumer spending will fall by less and the recession will be shallower. We’re now expecting a peak-to-trough drop of around 0.5% of GDP, down from 1.5%.

Energy support package explained

Here’s a handy explanation about what today’s announcement means for business owners, and those running schools, hospitals and charities too:

The electric arc furnace at Liberty Steel's Aldewerke mill in Rotherham, U.K.

The plan to cap energy costs has also been welcomed by the steel industry, one of the energy-intensive sectors hit hard by soaring gas and electricity bills.

Director General of UK Steel, Gareth Stace, said the cap will help industry get through the winter.

“The Business Secretary’s announcement today demonstrates that this new Government understands the sheer scale of the issue and the need to deliver a significant solution swiftly.

Setting a price cap for electricity at £211/MWh for six months gives foundation sectors, such as steel, the chance to get through the winter by giving us a competitive business landscape. The Government has clearly listened to sectors such as steel, estimated the enormity of the challenge that energy intensive sectors face, and today has delivered.

The Resolution Foundation have given the energy package a fairly warm welcome – saying it’s well-targeted at tackling soaring bills.

They argue it strikes the ‘right balance’ between tackling businesses’ soaring bills, while avoiding offering support for businesses who don’t need it [because their energy costs are still below the new price cap].

Emily Fry, Economist at the Resolution Foundation, said:

“Today’s welcome package of support for business strikes the right balance of preventing firms being hit with soaring bills this winter, while encouraging them to become more energy efficient, and avoiding giving support to firms on longer term energy contracts who frankly don’t need it.

“Today’s package requires another large cheque from a government already grappling with higher borrowing. But, unlike with support for households, that cheque is not blank – reflecting limits on the size of the discount firms can receive.

“Overall, the Government’s energy bills support package is welcome, but expensive, and could easily cost over £100 billion.

The refusal to cover more of this cost with windfall and solidarity taxes will add pressure on the Bank of England to up the pace and scale of interest rate rises, which will start to be felt by mortgagors in the months ahead.”

UK households face £3bn hit if Bank goes ahead with 0.75-points rate rise

The Bank of England could hit borrowers with more financial pain tomorrow, when it announces its latest interest rate move (almost certainly a sharp rise).

Trading in financial markets reflects an 80% probability of a 0.75 percentage point increase, which would mark the biggest single rate increase since 1989, when inflation was soaring during a consumer boom before the onset of the early 1990s recession.

However, experts said the Bank pushing ahead with the biggest rate hike for more than three decades would mean an extra £3.1bn of interest payments for borrowers on standard variable rate and tracker mortgages.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said:

“For anyone who is already struggling with runaway price rises, the extra cost of the mortgage could be the final straw.”

Our economics correspondent Richard Partington has the full story:

After some choppy sessions recently, stocks have opened higher in New York ahead of tonight’s US interest rate decision.

The S&P 500 – a broad index of US companies – is 0.4% higher, up 15 points at 3,871.

Investors are expecting another hefty rise in US interest rates from the Federal Reserve – quite possibly the third 75bp rise (three quarters of a percent) in a row, or even a full percentage point rise.

Updated

Councils seek more help through cost of living crisis

Local councils are welcoming the six month energy price guarantee – but warning that they, too, need further help to get through the cost of living crisis.

Cllr Andrew Western, chair of the resources board at the Local Government Association, says capping gas and electricity costs (at around half the expected levels this winter) is a ‘positive step’.

The LGA says councils have been hit by soaring prices – pushing up the cost of running and repairing street lighting, filling potholes and building new roads

Western explains:

“Alongside energy bills, councils are also facing massive increases in costs due to spiralling inflation and National Living Wage increases both this year and in future years. This is forcing councils to reset budgets leading to cuts to local services just to meet their legal duty to balance the books.

“Further government support will be needed by councils and residents to cope with these ongoing pressures and to protect the services that our communities rely on every day and will be vital to help residents cope through the cost-of-living crisis.”

UK brewers are also concerned by the looming ‘cliff edge’ at the end of next March.

Roy Allkin Chairman of the Society of Independent Brewers (SIBA) says the sector has suffered from soaring energy bills:

Many independent brewers have been hit hard by the recent spikes in energy prices and today’s bold step will give them six months of headroom.

However given the uncertainty in the energy markets, there is a danger that a cliff edge will be created next year and serious questions remain about the criteria being used to identify the most vulnerable businesses that will be eligible for further support.

Union urges BoE governor to denounce lifting bankers' bonus cap

The debate on banker bonuses is heating up ahead of Friday’s mini-budget, with Bank of England governor Andrew Bailey now under pressure to denounce plans to scrap the cap on bumper payouts.

Kalyeena Makortoff, our banking correspondent explains…

You’ll remember that Bailey was repeatedly criticised for suggesting workers should hold back from asking for pay rises, amid fears that it could further fuel inflation. He originally said in February: ‘We do need to see restraint in pay bargaining otherwise it will get out of control.’

But GMB union general secretary Gary Smith says Bailey risks setting a double-standard unless he takes a stance against scrapping the cap - a move which is widely expected to be confirmed on Friday.

The current cap was part of post-financial crisis reforms introduced by the EU in 2016, and meant bankers were limited to bonuses worth two times their salaries. (More here for context)

In a letter to Bailey, Smith says:

“The Prime Minister has stated she supports plans to scrap the cap on bankers’ bonuses. To my mind, this will rightly be seen as a gratuitous insult to workers who are being told by you and others to tighten their belts.”

Smith goes on to ask whether Bailey will stand by his comments about restraints in pay bargaining, adding:

“Will you denounce these plans for uncontrolled banker bonuses as a risk to inflation? Our members know that inflation is being driven by energy prices, profiteering and supply chain disruptions, not pay.”

The GMB boss also reiterates his offer for Bailey to shadow a low-paid care worker, saying that:

“It would also be a good opportunity for you to explain directly, if this is your view, why the Bank of England thinks there should be one rule for bankers and another for care workers.”

It remains to be seen whether Bailey chooses to take on the banker bonus battle, given he’s also facing a crisis of independence, with the government threatening to introduce powers that would allow politicians to intervene in regulatory matters.

The Unite union has dubbed the energy support package a taxpayer funded ‘panic measure’.

Unite general secretary Sharon Graham said:

“The government plans are a short term taxpayer funded panic measure. Although they will give business some respite on soaring energy bills in the short term, employers are crying out for long-term solutions in order to be able to plan with confidence for the future.

“Yet again the taxpayer is being required to pick up the tab, with no check or penalty being placed on the excessive profits being generated by the energy companies who will be laughing all the way to the bank.”

Track political reaction here

Andrew Sparrow’s Politics Live blog is also covering the political reaction to today’s support package – including warnings that it comes too late for some companies:

The chair of parliament’s Business, Energy and Industrial Strategy Committee, Darren Jones, has criticised the government for not targetting its support at businesses and organisations who most needed the help.

Jones, Labour MP for Bristol North West, says:

“Capping the price for all businesses is a waste of taxpayers’ money, which should be targeted at those which need it the most.

Why should British taxpayers collectively get into even more debt to hand over public funds to Amazon?”

UK manufacturers increasingly gloomy about outlook

British manufacturers expect the biggest drop in production since the start of last year over the next three months, as economic storm clouds darken.

The Confederation of British Industry’s regular healthcheck on the sector shows that factory bosses are increasingly pessimistic about the outlook – showing the urgent need for today’s energy support package.

The difference between manufacturers who expect a rise in output over the next three months, and those who expect a fall dropped to -17% in September, from -2 in August.

That’s the lowest since during the Covid lockdowns of January 2021.

Anna Leach, CBI deputy chief economist, said the economic outlook has deteriorated:

“It is clear that the downturn, which originated in consumer-facing services, has spread to manufacturing, with output falling for the second month running. When adding an uncertain demand environment to ongoing input and labour shortages, and a cost-of-doing-business crisis, the outlook looks increasingly challenging for the sector.

“If the country is going to fulfil the government’s ambitious plans to supercharge economic growth, businesses need the confidence and the capital to invest. The announcement of support on energy bills is a good first step, and the CBI looks forward to working in lockstep with the Government going forward.”

Meanwhile in the City….French telecoms billionaire Xavier Niel has acquired a 2.5% stake in Vodafone, citing opportunities to accelerate a “streamlining” of the London-listed group’s business.

Niel, who founded the telecoms company Iliad, has taken the stake through his investment vehicle Atlas Investissement.

My colleague Mark Sweney has the full story:

The big question is whether this marks the start of further stake building and what Niel plans to do with his increasing share of the company, explains Victoria Scholar of Interactive Investor:

Niel is a veteran in the telecoms industry with vast experience through his majority shareholding in Iliad, which he took private last year. Vodafone shares are trading at depressed levels, down more than 20% since the February highs, providing an attractive entry point for Niel.

Since 2015, investors have had a rough ride with the stock which is down by almost 60% from the peak and losses have accelerated over the last month. Vodafone has been struggling this year with the pressures from inflation, in particular with rising energy costs.

Analysis: Cost to taxpayer of Truss’s £100bn energy package escapes scrutiny

There can be no starker contrast between how the two political parties are judged on economic policy than the way the past fortnight has played out for Liz Truss, our chief political correspondent Jessica Elgot writes:

The astonishing scale of state spending to relieve the energy crisis and enable tax cuts has been announced with total omertà thus far on how much the proposals will cost the British taxpayer.

One Labour shadow cabinet minister observed this week that they had been irritated by an interview with Rishi Sunak earlier in the leadership contest on how he would fund his own energy crisis package – costing a mere £15bn – where he had admitted at least £10bn would come from borrowing.

“We’d have been crucified for that,” the shadow cabinet minister observed.

“But since then we’ve had the new PM announce hundreds of billions and refused to say anything at all.”

The energy package for business announced on Wednesday also has no detail on the anticipated costs of discounting wholesale power prices for companies, charities and public sector organisations, including schools….

Here’s the full analysis:

Marks and Spencer to give thousands of workers second pay rise this year

A sign for Marks and Spencer outside one of their UK stores in London.

The cost of living crisis has prompted Marks & Spencer to raise its pay rates for the second time this year.

M&S will lift the hourly pay rate formore than 40,000 workers to a minimum of £10.20 from October 1st, as part of a £15m package.

The additional autumn pay review, a first for M&S, follows an initial pay increase in April to £10/hour, from £9.50.

Combined, this represents an annual raise of 7.4% – while UK inflation was 9.9% in August.

M&S is also giving 4,500 salaried staff on pre-management levels a one-off £250 M&S voucher, and offering a free meal per shift for staff at its Distribution Centre in Castle Donington.

This month, M&S also introduced free sanitary products to colleagues across all stores and sites.

Cost of UK support to cap energy bills to be set out on Friday

The government will set out the cost of capping energy prices for households and businesses in Friday’s mini-budget, a spokeswoman for Prime Minister Liz Truss said.

Reuters has the details:

The government pledged on Wednesday to cap electricity and gas costs for businesses at less than half the market rate.

The finance minister Kwasi Kwarteng plans to make a fiscal statement on Friday to explain his plans to support households and businesses through the coming winter.

“Costs will be set out in the expected fiscal event on Friday,” Truss’s spokeswoman told reporters.

The chancellor is expected to unveil tax cuts of £30bn to £50bn, according to some estimates, while the government’s intervention to freeze energy prices for consumers and businesses could cost more than £100bn.

(although, as Jacob Rees-Mogg pointed out earlier, the final bill depends on the energy market).

Kwarteng has also refused to let the government’s fiscal watchdog assess the economic impact of planned tax cuts:

Updated

Here’s a clip of Jacob Rees-Mogg announcing today’s six-month support package via video – rather than to MPs in the House of Commons, where he’d be questioned about the details (incuding the cost!).

He explains how the package will help businesses, charities, and public sector organisations including schools, nurseries, hospitals and care homes.

Rees-Mogg says the package will help keep high streets ‘humming this winter, and beyond’ – although, as we flagged earlier, there’s a boarded-up shop next to the business secretary, out of shot….

Updated

Full story: UK businesses given six-month emergency energy price cap

Businesses have been given an emergency package of government support including a cap significantly reducing the price paid for energy from 1 October to help them get through the winter, our energy correspondent Alex Lawson explains:

The UK government has stepped in to discount wholesale power prices for companies, charities and public sector organisations, including schools.

Under the plan, they will be given support for six months to protect them from soaring bills. Further help will be offered to companies in vulnerable industries after that.

The business department has announced a “supported wholesale price” expected to be £211 a megawatt hour for electricity and £75 a MWh for gas, which it said would be less than half the wholesale prices anticipated this winter.

The cap means that electricity prices for business customers will still be about double what they were in October 2021, when the price per megawatt hour was £117, but more than half the forecast winter prices of about £540.

The scheme limits the price suppliers can charge customers for units of gas and electricity. Businesses will not need to take any action, as the discounts will be automatically applied to their bills.

The changes will apply to new contracts from 1 October, and to fixed contracts taken out since 1 April.

Here’s Alex’s full story:

This chart shows how the government’s price cap will protect businesses, public sector groups such as schools, and charities from the surge in electricity bills this winter:

Asked about the impact on government borrowing, Jacob Rees-Mogg says the support package will reduce the interest bill on index-linked UK debt.

That’s because it will lower inflation, which is used to set the repayment cost on gilts linked to the RPI measure of rising prices, he explains.

[we learned this morning that interest payments on the national debt hit a record in August, due to high inflation].

Rees-Mogg agreees there will be a cost to today’s package, but argues this burden should be borne collectively on the balance sheet that can bear it.

Updated

Rees-Mogg adds that today’s business support package only last for six months due to the complexity of the non-domestic energy market.

Today’s package will give people confidence through the winter, he argues.

The package will be reviewed in three months time to check the government is giving support in the right places, and to ensure that continued support “if that’s necessary’ is directed where it is needed, the business secretary adds.

That sounds like a hint that some of the groups covered by today’s announcement, such as schools, hospitals and care homes as well as the hospitality sector, could get more support beyond next March.

Updated

Rees-Mogg: package will cost tens of billions of pounds

Business secretary Jacob Rees-Mogg says the energy support package will cost ‘tens of billions’ of pounds, but can’t give a precise estimate – as it will depend on the wholesale energy market.

Rees-Mogg has told Sky News that the caps on gas and electricity announced today will be a ‘huge support’ for businesses, to ensure they can cope with the rise in energy prices caused by Putin’s war in Ukraine.

He adds:

The difficulty with giving you a cost figure is that this will depend on where the price of energy goes over the winter, and that’s very difficult to forecast.

I can’t give you an absolute cost, but we are talking about many billions of pounds.

It will be into the tens of billions, unquestionably.

Some businesses are looking for more support from the government – warning that the cost of living crisis could also hit takings.

Paul Cook, 50, a director at the Angry Parrot pub, told PA Media that the energy cap won’t make a difference if people can’t afford to visit pubs, clubs and hospitality venues.

He added:

“VAT is always a killer, if we could reduce that that would be more than welcome. It’s all about cash flow for us. Any scrapping of business rates for the remainder of the year, that would be more than welcome.

“This support’s only for six months, and I don’t mean to sound ungrateful, but what’s going to happen after those six months? Will it be enough to turn it all around? We need to make sure the public has disposable income.

Cook warned that business had already deteriorated:

“Trade for us has already dropped off probably by about 40% in the past month. We’re looking towards the Christmas period and hoping this could help to kickstart things, but I don’t know.”

The new cap applies to businesses on existing fixed price contracts signed since April 1st, and on any new fixed contracts taken out from 1st October.

Firms on default, deemed or variable tariffs will receive a per-unit discount on energy costs – but that will be capped, so they could end up paying more if wholesale prices rise above the current expected levels.

Key event

The early years sector also warned of the perils of a cliff edge in six months’ time and called for additional future support for nurseries which are closing “at an alarming rate”.

Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA) said:

“Although capping energy costs will help give certainty over what will be a very difficult winter, it cannot lead to a cliff edge in six months’ time.

“Childcare businesses – which have been closing at an alarming rate - are absolutely fundamental both for children’s development and for parental employment. Due to their importance and the risks they face, they must be classed as vulnerable, so they get additional future support.”

The UK Green Building Council is urging the government to produce a strategy to cut the vast costly energy waste from the sector’s poorly insulated buildings – including through tax incentives.

Shifting from gas and oil heating to more efficient, low carbon options, will also help give firms energy security.

UKGBC’s Head of Policy & Public Affairs, Louise Hutchins, explains:

Measures such as VAT and business rates cuts for businesses investing in decarbonising their buildings and requiring companies to measure and publish their energy performance will all be needed if we are to get off the hook of high and volatile gas bills year on year.

Labour: farcical that energy support package took so long

Labour have criticised the government for failing to provide help to businesses and other non-domestic users sooner, given the energy crisis has been building for months.

Jonathan Reynolds MP, Shadow Secretary of State for Business and Industrial Strategy, says some firms have already collapsed while waiting for support:

“It is farcical that the Tories have been unable to tell businesses at the sharp end of the energy crisis what they plan to do to help them until now. Labour has been calling for support since the start of the year.

“Businesses have been crying out for detail on these plans and, even now, there are still questions about how much this will cost and who will pay for it.

“We have known a crisis of this scale has been coming for months and Conservative dither and delay has forced too many businesses to close, with the future still looking bleak.

“While the Tories prioritise the profits of oil and gas producers, Labour will always be on the side of business and the jobs they create.”

Government business energy scheme 'will cost up to £25bn', Cornwall estimates

Today’s business energy support package to help firms through the winter will cost up to £25bn, the consultancy Cornwall Insight estimates.

Robert Buckley, Cornwall’s head of relationship development, explains that the new caps on gas and electricity costs will mean substantial savings for non-domestic users.

Effectively it takes the market back to the prices in spring this year, Buckley says (when the Ukraine war has already pushed up wholesale energy prices).

“The reduction in energy costs will be substantial. As a proxy and noting the challenge of calculating a homogenous discount across so many contract types, this represents a 45% discount to closing wholesale energy prices as at the end of last week.

The support effectively reverts the market back to where it was price wise in the Spring of 2022.

Buckley adds:

“Structuring this as fixed discounts on wholesale energy costs caps the cost of the scheme for government at around £25bn.

There will also be a strong incentive for businesses to move from out of contract to negotiated contract terms, which acts to maintain the integrity of the market. This will be very important for what emerges after these six months have elapsed.

Updated

Firms face 'continued uncertainty' with energy support cliff-edge in March 2023

The ICAEW, which represents chartered accountants, also fears a cliff-edge in six months time when the cap on non-domestic electricity and gas charges end.

Businesses will need to know soon what happens when this support ends, and what to expect if there are energy shortages, warns Iain Wright, ICAEW’s managing director for reputation and influence:

“Our members are playing a key role in both running companies facing increases in costs of doing business, as well as helping firms up and down the country deal with the fallout from the energy crisis but continued uncertainly makes it extremely difficult to plan.

We hope the government continues to respond flexibly to provide support where needed, otherwise firms will face a cliff edge in six months’ time which can only mean price increases and real threats of company failures - feeding inflation, harming the economy and hurting consumers.

Updated

The long term solution to Britain’s energy crisis include using less, says Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit.

With taxpayer support only set to last for six months under the current plan, the question is what happens after that?

“Experts have said time and time again that the government’s approach to the gas crisis is missing a key component – conserving energy. While billions will be spent on bailing out bills, much less is targeted at the root of the problem, that we waste huge amounts of our energy.”

CBI: What happens when cap runs out next March?

The CBI, which represents UK businesses, is also concerned about what will happen when the package ends in six months time.

Matthew Fell, CBI Chief Policy Director, says the cap on gas and electricity costs for non-domestic users announced today is ‘a substantial short-term fix to a long-term problem’.

“The package will ease worries about otherwise viable businesses shutting-up shop and smaller companies especially will benefit from the discounted rate.

“Businesses will also want to know more about the exit strategy and what happens when the six-month cap runs out. Working closely with business will be key to successful implementation.

“The long-run solution is to double-down on energy security and to incentivise firms to push ahead with ambitious energy efficiency programmes to lower demand.”

Schools warn energy relief package is too short

School leaders have welcomed the government’s new energy bill relief scheme, but warned that limiting it to six months would make it impossible for schools and colleges to plan financially at a time when already tight budgets are under additional strain from unfunded pay awards to teachers and support staff.

Geoff Barton, general secretary of the Association of School and College Leaders, said without the cap schools and colleges were facing “absolutely massive hikes” in energy costs which would have caused an immediate financial meltdown in the sector, our energy correspondent Sally Weale writes.

But, Barton added, “The glaring problem is the fact that the scheme is time-limited to six months”, meaning schools cannot plan for the future with any confidence.

“The government says it will review the operation of the scheme in three months’ time to inform decisions on future support after March 2023. However, this uncertainty makes it impossible for schools and colleges to plan financially with any degree of confidence because they could be knocked off course at a later date by steep rises to energy bills if government support drops off.

School and college budgets are incredibly tight and any financial ill-wind is potentially devastating. We will be pressing the government for a firmer commitment to the sector.

Barton went on:

“The other issue is the fact that pay awards for teachers and support staff have been agreed at a national level but there is no additional government funding for schools and colleges to be able to afford the cost of these awards. The pay awards are fully deserved and needed – and in fact do not go far enough – but the government’s expectation that this will be paid for out of existing budgets that are already very tight is completely unrealistic and unsustainable.”

How the package might help a pub

Pubs in the historic market town of Henley.

Although the government says today’s cap sets gas and electricity costs at just half the expected winter levels, the actual savings will depend when a firm signed its energy contract.

BEIS have supplied an example of how the wholesale energy price cap will work for a pub which fixed its energy bill last month – when prices were surging.

  • A pub uses 4 MWh of electricity and 16 MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.

  • The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.

Hospitality firms fear cliff edge once package ends

Kate Nicholls, CEO of UKHospitality, has warned that the government must avoid a ‘cliff edge’ when today’s six-month package of help finishes at the end of March 2023.

Nicholls says:

“This intervention is unprecedented and it is extremely welcome that Government has listened to hospitality businesses facing an uncertain winter.

We particularly welcome its inclusiveness – from the smallest companies to the largest - all of which combine to provide a huge number of jobs, which are now much more secure.

The Government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the Government, to ensure that there is no cliff edge when these measures fall away.”

Many pubs had warned that they faced collapse this winter without support through the energy crisis:

Updated

The Government plans to publish a review its Energy Bill Relief Scheme in three months time.

That will examine whether it could be extended beyond the end of March 2023, and further targeted – or replaced with other targeted support for these most vulnerable users.

A parallel support package for non-domestic users will be established in Northern Ireland, the BEIS department says (Northern Ireland has a different energy market than the rest of the UK, and isn’t covered by Ofgem’s domestic price cap).

The government will also provide equivalent support to non-domestic users who use heating oil or alternative fuels instead of gas, because they aren’t connected to either the gas or electricity grid (with details to follow….).

Business Secretary Jacob Rees-Mogg says the government’s plans will “increase growth, protect jobs and support families with their cost of living this winter”.

Rees-Mogg explains:

“We have seen an unprecedented rise in energy prices following Putin’s illegal war in Ukraine, which has affected consumers up and down the country and businesses of all sizes.

“The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support.

Worryingly, gas prices are rising this morning after Putin announced the partial mobilisation of Russian forces. The wholesale month-ahead UK gas price has risen 6% to 335p per therm – twice as much as a year ago (but only half its August peak).

Kwarteng: this will project jobs and stop businesses collapsing

Chancellor Kwasi Kwarteng says the package will prevent companies collapsing under the weight of soaring energy bills this winter:

“We have stepped in to stop businesses collapsing, protect jobs, and limit inflation.

“And with our plans to boost home-grown energy supply, we will bring security to the sector, growth to the economy and secure a better deal for consumers.”

Liz Truss says the new scheme will provide certainty and peace of mind to businesses, charities and public sector organisations this winter, by keeping their energy bills down.

Wholesale price capped at 'less than half' anticipated levels this winter

The new package is ‘equivalent’ to the support for households announced almost two weeks ago, says BEIS (although it won’t last as long).

It will cap gas and electricity prices at ‘less than half’ the wholesale prices expected this winter, the department explains:

To administer support, 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 the wholesale prices anticipated this winter – which is a discounted price per unit of gas and electricity.

This is equivalent to the wholesale element of the Energy Price Guarantee for households. It includes the removal of green levies paid by non-domestic customers who receive support under the scheme.

Updated

UK announces energy support for non-domestic users

Breaking: Gas and electricity costs for UK businesses, charities and public sector bodies are to be capped – the government has announced.

The BEIS department says that electricity prices are expected to be capped at £211 per megawatt hour, while gas prices will be capped at £75 per MWh –- in line with what was reported overnight.

[that’s 21.1p/kWh for electricity and 7.5p/kWh for gas]

Suppliers are to apply the reduction automatically to all eligible non-domestic customers, BEIS adds, with the government compensating suppliers for the cost.

The savings will apply to contracts signed since April 1st this year – and run from 1st October to 31st March 2023.

More details to follow….

Updated

Devolved governments in Scotland, Wales and Northern Ireland have urged the Chancellor not to pass the cost of an energy cap on to struggling families.

Scotland’s Deputy First Minister John Swinney, Welsh finance minister Rebecca Evans and Conor Murphy, Northern Ireland’s finance minister, have called for an extended and targeted support package for those worst hit by the cost-of-living crisis.

In a joint letter to Kwasi Kwarteng, they say the UK government should impose a windfall tax to ensure the energy sector pays the price, “rather than passing on the cost through higher borrowing”.

They say:

“We are deeply concerned at who will bear the brunt of these costs.

“Support should be funded by targeting the windfall gains in the energy sector rather than passing the cost to households through higher borrowing.

“Looking ahead to your forthcoming fiscal statement, we urge you to focus efforts on those most impacted, not just relying on blanket interventions which do not recognise the scale of hardship particular households are facing.

Business secretary Jacob Rees-Mogg was spotted yesterday being filmed in Westminster – perhaps for an online video to outline today’s energy support package?

Sam Coates of The Times has the details:

IFS: UK's energy support package is 'almost a panic reaction'

The UK’s energy support packages for households and businesses are “something of almost a panic reaction.”

That’s the verdict from Paul Johnson, director of the Institute for Fiscal Studies, this morning.

He told BBC Radio 4’s Today programme:

“I think something like this was inevitable. Some businesses were seeing their energy bills going up by five times - or certainly that was likely to happen from October.

“Just as households were going to need some protection, so were businesses.

Johnson adds that the government is right to be planning more targeted support for businesses in six months time.

“I rather wish they had done the same for households because for households and for businesses this is something of almost a panic reaction.

“You have got to do something and the only thing that they can do immediately is protect everybody, whereas in the medium term if this goes on we really want something that is more targeted.”

The prospect of a cut in UK stamp duty has pushed up shares in UK housebuilders.

Persimmon (+4.6%), Barratt (+3.6%), Taylor Wimpey (+3.3%) and Berkeley (+3%) are all among the top FTSE 100 risers, as traders anticipate changes to the property sales tax.

Weapons manufacturer BAE Systems has jumped almost 4.5%, as defence stocks rally after the ‘partial mobilisation’ announced by Putin this morning.

Liz Truss 'to cut stamp duty' in mini-budget

Today’s public finances report shows the UK government received £7.8bn of revenue from stamp duty so far this financial year, over a third more than in April-August 2021.

VAT revenues are up 12% this financial year (to £73.1bn), while PAYE income tax receipts are 10.7% higher (at £81.8bn).

According to The Times, the government will announce plans to cut stamp duty in the its mini-budget this week in an attempt to drive economic growth.

Liz Truss, they explain, believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.

But cutting stamp duty could simply allow sellers to charge more for their properties (as stamp duty is paid by the buyer), pushing up prices…

Updated

Germany nationalizes Uniper to avert energy sector collapse

Over in Germany, the government has agreed to nationalize gas importer Uniper in a historic move to prevent its energy sector collapsing.

Under today’s deal, Germany will take control of Uniper, buying the 78% owned by Fortum -- which is majority owned by the Finnish government -- for about €480m.

The government in Berlin will also inject €8bn into Uniper, after the Dusseldorf-based utility ran up billions of euros of losses after Russia cut off supplies to Europe.

That sent Uniper scambling to find alternative gas supplies, as prices soared as European countries tried to built up storage before winter.

The pound has hit a new 37-year low against the US dollar, dropping below last week’s weakest point.

Sterling dropped below $1.131, levels last seen in 1985, before recovering a little. It’s now down over 16% against the dollar this year.

The pound vs the US dollar over the last 20 years
The pound vs the US dollar over the last 20 years Photograph: Refinitiv

The euro also weakened, while safe-haven government bonds are rallying, after Russian president Vladimir Putin announced the partial mobilisation of forces in Russia, in a national address.

Putin also accused the west of planning to destroy Russia and use nuclear blackmail, and said Russia would use “all means available to us”.

Our liveblog on the Ukraine war has more details:

Chancellor Kwasi Kwarteng has said the government is right to help families and businesses, after the UK borrowed £11.8bn last month.

Kwarteng said in a statement:

“I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses,”

“Our priority is to grow the economy and improve living standards for everyone - with strong economic growth and sustainable public finances going hand in hand.”

The UK borrowed nearly twice as much in August as the Office for Budget Responsibility had predicted back in May, points out Michal Stelmach, senior economist at KPMG UK:

“Public sector borrowing came in at £11.8 billion in August, down by £2.6 billion from last year but £5.8 billion above the OBR’s forecast.

This overshoot was driven by higher than expected inflation which pushed up debt interest costs, and the rollout of the first instalment of the £650 cost-of-living payment for households on means-tested benefits which began in July.

A return of large-scale borrowing under Liz Truss’s government will be “a test for the bond markets”, Stelmach warns:

“Since the start of the year, UK 10-year government bond yields have already risen by over 230 basis points.

The expected increase in borrowing to fund the Energy Price Guarantee, coupled with a fall in the Bank of England’s gilt holdings, will be a test of whether private investors can absorb an outsized bond issuance without a further punitive increase in debt servicing costs.”

Updated

UK government borrows more than expected in August

Britain borrowed more than expected in August, as soaring inflation pushed up the UK deficit.

Public sector borrowing, excluding state-owned banks, came in at £11.82bn last month, the Office for National Statistics reports this morning.

This was £2.6bn less than in August 2021 but £6.5bn more than in August 2019, before the pandemic, when the UK borrowed £5.3bn to balance the books.

A Reuters poll of economists had predicted the UK would borrow £8.45bn.

The deficit was pushed up by the cost of repaying existing debt.

The UK spent £8.2bn on interest payments on central government debt in August. That includes £4.7bn due to the impact of rising RPI inflation (which pushed up the cost of repaying index-linked government debt).

Introduction: Ministers to cap firms’ energy costs amid calls for longer-term support

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

UK businesses, charities and public sector bodies are finally going to learn what support they will receive to help them through the energy crisis – but will it be enough?

The government is expected to announce a cap on wholesale gas and electricity costs for these groups today, in the second part of its energy price guarantee to cut soaring bills.

The plan, to be announced by business secretary Jacob Rees-Mogg, is expected to cut the rate for electricity and gas for non-domestic users by about 50% and 25% respectively, compared with current contracts.

It’s likely to cost tens of billions of pounds, depending how high wholesale energy prices remain.

Two weeks ago, Liz Truss promised ‘equivalent support’ for businesses and public sector organisations over the coming winter, when she announced the government would cap domestic bills at an average £2,500 a year

But while those domestic cap runs for two years, the business support may only last six months for many firms.

The discounts are set to apply to contracts signed since April 1 this year, and would last for six months starting from October 1, Bloomberg reported last night.

That would help companies get through the winter crunch, but provide less certainty about the future.

Yesterday, pub chain Fuller’s revealed its energy bill was due to more than double this year, from £8m to £18m, without government support.

And business groups have warned that the UK faces a “lost generation” of traders, adding that a cap would not affect high standing charges imposed by suppliers.

As my colleagues Rowena Mason and Alex Lawson explain:

Suppliers would be able to impose their own charges on top and would be compensated for the wholesale price cap by the government.

This would be about 21p per kilowatt-hour for electricity and 7.5p per kWh for gas. There would be a different cap for those paying variable rates. Government sources said this was the most likely model and scale of energy bill support for businesses, without saying how much the total package would cost the Treasury.

Craig Beaumont, the chief of external affairs at the FSB, said: “If the government is going for a fixed wholesale price, tomorrow we need to understand how that will be applied to small businesses’ energy bills in practice. A small business will need to be told by their supplier, fast, what their new bill will be.

“However, there may be no regulation of the other major element of small business energy bills – the standing charge.

“While consumers will have their standing charge capped, small firms won’t, and that means energy providers could continue to hike standing charges, and so still mean small businesses seeing their energy bills spiral.”

We’ll also be watching the financial markets today, where investors are bracing for another hefty rise in US interest rates tonight.

Economists are predicting the US Federal Reserve will raise its benchmark interest rate by 0.75 percentage points, the third such rise in a row, and signal plans to raise rates again in the coming months.

The agenda

  • 7am BST: UK public finances for August

  • 9am BST: Government’s energy business support plan expected

  • 11am BST: CBI industrial trends survey of UK factories

  • 3pm BST: US existing home sales in August

  • 7pm BST: US Federal Reserve interest rate decision

  • 7.30pm BST: Federal Reserve press conference

Updated

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