UK slashes energy subsidies for businesses in 2023/24

By Andrew MacAskill and David Milliken

LONDON (Reuters) - Britain announced plans on Monday to scale back energy subsidies for businesses for the next financial year by about 85% to 5.5 billion pounds ($6.7 billion), after the government described the current level of support as "unsustainably expensive".

The current six-month programme of energy support that will expire at the end of March was predicted to cost 18.4 billion pounds when the government's budget watchdog published forecasts in November.

"My top priority is tackling the rising cost of living -something that both families and businesses are struggling with," finance minister Jeremy Hunt said in a statement. "That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able."

The finance ministry has been looking at ways to pare back the energy support packages as it tries to stabilise the nation's public finances after the political and economic turmoil under former Prime Minister Liz Truss's short-lived government.

The government said most businesses would receive a discount on their energy bills of up to 6.97 pounds per megawatt hour (MWh) for gas and 19.61 pounds per MWh for electricity between April 2023 and March 2024.

This is a different and less generous structure than the current programme, where the government set a maximum business tariff of 75 pounds per MWh for gas and 211 pounds per MWh for electricity, and compensates energy suppliers in case of higher wholesale rates.

Under the new programme, businesses rather than government will have to pay the extra costs if energy prices surge.

The new programme will include extra support for some energy-intensive businesses, mostly in manufacturing.

PRICE VOLATILITY

British natural gas prices began to pick up sharply in the second half of 2021, and soared after Russia invaded Ukraine in February 2022.

Prices have been extremely volatile since. Although they are now back around the same level as a year ago - and lower than when the current support package was announced - they are still several times higher than in early 2021.

Hunt said he was concerned that the benefit of falling prices was not being passed on to businesses, so he has written to the energy regulator Ofgem asking for an update on whether action is needed.

The government had originally been due to publish its proposals for business energy support before the end of 2022, but the decision was delayed, angering some businesses facing uncertainty over their energy bills.

Britain's Federation of Small Businesses said the reduced support was "a huge disappointment".

"Many small firms will not be able to survive on the pennies provided through the new version of the scheme," FSB National Chair Martin McTague said.

UK Steel - most of whose members will benefit from the extra support for high energy users - gave the programme a cautious welcome, but said it was still less generous than the aid Germany had offered to its steel producers.

"The government is betting on a calm and stable 2023 energy market, in a climate of unstable global markets, with the scheme no longer protecting against extremely volatile prices," UK Steel Director General Gareth Stace said.

($1 = 0.8199 pounds)

(Reporting by Andrew MacAskill and David Milliken; editing by Paul Simao)