Budget brings brief relief on energy bills for households but businesses left in the cold
Written by Tim Greenhalgh
The Budget for Growth has brought a smattering of short-term relief for households struggling with soaring energy bills but no further help for businesses.
Chancellor Jeremy Hunt jumped in ahead of his Budget statement to the House of Commons and confirmed the widely leaked decision to extend the Energy Price Guarantee (EPG) ceiling of £2,500 for 3 months up to July, covering domestic customers. Previously, the Government planned to see the ceiling rise to £3,000 on April 1st.
The EPG was launched last October in response to frightening spikes in energy prices, with Russia’s invasion of the Ukraine the main factor.
The EPG sits alongside the Energy Price Cap (EPC), which itself was introduced in 2019 in response to surges in energy costs. The EPG is lower than the EPC and limits the energy bill for a “typical household”. From July it will be £3000 until the scheme ends in April 2024.
Under the scheme, the government compensates energy providers for any extra energy bill costs households incur above that average limit.
Prepayment meter change
The Chancellor also announced that prepayment energy charges are to be brought into line with customers paying by direct debit. The Treasury estimates that more than 4 million struggling households could save £45 a year on energy bills from July 1st.
Households on “pay-as-you-go” are often low income but pay more because energy firms pass on costs of managing the meters. The Treasury estimates the change will cost £200m.
Campaigners and opposition parties say falling wholesale energy prices have sharply cut the cost of offering support and urged the government to do more to support households struggling to cope with bills that have doubled in a year.
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Help for business
The Chancellor offered no further direct help on energy costs for businesses and is expected to roll back its support for non-domestic customers from April 1st with the end of the Energy Bill Relief Scheme. This will mean higher energy bills for millions of businesses.
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The Chancellor did increase the Annual Investment Allowance to £1m, which means that 99% of smaller businesses can deduct the full value of investment in IT equipment, plant or machinery from that year’s taxable profits. And SMEs will be able to claim a credit worth £27 for every £100 they spend if they spends 40% or more of their total expenditure on research and development.
Corporation tax for businesses is to increase from 19% to 25%, as planned.
Hunt also announced 12 new Investment Zones across England, with each backed by £80m funding, including “generous tax incentives” in the form of a new tax break regime for businesses. This should help offset a planned rise in corporation tax, from 19% to 25% on 1 April.
The aim of the entrepreneurial zones is to drive investment in crucial regions and sectors, with the funding scheduled over five years, accelerating local growth in the 5 key sectors flagged by government:
- green business
- life sciences
- advanced manufacturing
- creative industries.
The high-growth Investment Zones will include 8 areas already identified in England, along with 4 across Scotland and Northern Ireland that are yet to be chosen. The Treasury will agree final plans with local authorities and devolved governments to deliver the new zones by the end of this year.
The 8 proposed zones in England:
- East Midlands
- Greater Manchester
- North East
- South Yorkshire
- Tees Valley
- West Midlands
- West Yorkshire.
The Investment Zones flesh out ideas first floated in the Autumn Statement last year, which the government promotes as a “pioneering new approach to accelerate research and development in the UK’s most budding industries”, including the green economy and clean technologies.
The zones will be grouped around existing research institutions such as universities.
The investment zones are in part a response to urgent appeals from businesses, civil society, and opposition parties for strategies that can push back against the commercial effects of the US Inflation Reduction Act (IRA) that has promised $369bn in tax incentives and subsidies for domestic clean technology investments.
There is a compelling need to provide a stable and attractive policy and investment environment to underpin the UK’s competitiveness as global competition for green investment grows. The EU Commission has committed around 1 trillion Euros to green policy and strategy, announcing a Green Deal Industrial Plan, boosting by new regulations and funding programmes in the Net Zero Industry Act launched this week.
As part of support for the green economy, the chancellor also confirmed a £20bn investment in carbon capture technology over the next 2 decades. The government target is for at least one low-carbon industrial cluster with carbon capture to come online this decade, and forecasts capture pf between 20 million and 30 million tonnes of CO2 per year by 2030.
He has also extended the Climate Change Agreement scheme for two years to allow eligible energy-intensive businesses £60m of tax relief on energy efficiency measures.
The moves are part of a “reset” of government efforts to clean up the UK’s domestic energy supply and safeguard energy security with the ambition to create up to 50,000 high-skill green jobs. The new focus includes a competition to develop small modular nuclear reactors (SMRs).
And the Chancellor also promised £63m for public swimming pools to help with soaring energy bills, including £40m earmarked for energy efficiency projects.