UK to reduce support for business energy costs

FILE PHOTO: The sun sets behind an electricity pylon near Petersfield

By David Milliken

LONDON (Reuters) -Britain's government will set out next week how it intends to scale back subsidies for businesses' soaring energy costs, after finance minister Jeremy Hunt described the current programme as "unsustainably expensive".

The current six-month programme, which runs until the end of March, was predicted to cost 18.4 billion pounds ($22.2 billion)when the government's budget watchdog published forecasts in November.

British natural gas prices began to pick up sharply in the second half of 2021, and soared after Russia invaded Ukraine in February 2022. They have been volatile since, and although they are now back around the same level as a year ago, they are still several times higher than in early 2021.

Britain's finance ministry said on Wednesday that Hunt would announce the result of a review into business energy support when parliament returns next week from its Christmas break.

However, when Hunt met businesses on Wednesday he warned them that any future subsidies would be smaller and described the current scheme as "unsustainably expensive", with costs potentially running into the tens of billions if it continued.

"No government can permanently shield businesses from this energy price shock," the finance ministry said.

"The chancellor explained that any future support, while at a lower level, would be designed to help them transition to the new higher price environment and avoid a cliff edge in support," the ministry added.

Business groups expressed concern at the prospect of reduced support. Emma McClarkin, who met Hunt on Wednesday as chief executive of the British Beer and Pub Association, said scaled-back subsidies would be "the last straw" for many pubs.

"Energy costs are the single biggest threat to our industry right now," she said.

The Institute of Directors said it now expected some form of support to be offered to businesses for a further 12 months, but that it was concerned there would be too little for the companies most exposed to higher energy bills.

Britain's government had originally been due to publish its proposals for business energy support before the end of 2022.

Energy bill support for most households is already due to fall by more than half after April 1. This will lead to the average household's annual energy bill rising by 20% to 3,000 pounds, saving the government 14 billion pounds in the next financial year.

($1 = 0.8299 pound)

(Reporting by David Milliken; additional reporting by Sachin Ravikumar editing by Michael Holden and William James)