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Energy bill support for firms set to be cut

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A new scheme to support firms with their energy bills will be announced in the House of Commons on Monday.

The current scheme which caps the unit cost of gas and electricity for all businesses expires at the end of March.

It will be replaced with a new scheme that offers a discount on wholesale prices rather than a fixed price.

Very heavy energy-using sectors, such as steel, glass and ceramics, are expected to get a larger discount than others, Treasury sources said.

The energy support scheme is mainly used by businesses, but is also for charities, and public sector organisations such as schools and hospitals.

Firms have been warning of a “cliff-edge” when the current support stops at the end of March, and the new scheme is expected to run until March 2024 to avoid this.

But the total level of government support is expected to fall sharply – by more than half – from the £18.4bn the current six-month scheme is estimated to have cost by the time it ends.

This is partly due to wholesale energy prices falling very sharply in recent months.

European gas reserves have held up better than expected thanks to an unusually mild winter in northern Europe.

Wholesale gas prices are now below the level they were before Russia’s invasion of Ukraine, but still three to four times higher than their long-term average.

All businesses can expect their energy bills to rise after March at the same time that government support for households will become less generous.

The bill for a typical household could rise from £2,500 a year to £3,000 a year from April – although energy analysts cautiously forecast that average bills may fall to £2,800 a year next October if current market conditions continue.

That would be a crumb of comfort for households and could save the government billions in subsidies.

But the bottom line is that energy prices are going up this year for businesses at the same time as their customers’ incomes are being squeezed even further.