Changes to UK Energy Cost Business Support from April 2023 Highlighted by UK Business Accountants
James Todd & Co review the UK government revised support mechanisms available to commercial organisations from April 23, affecting all aspects of cash flow forecasting and money management.
One of the immediate and most impactful results of rising business costs has been utilities – where gas and electricity bills have multiplied several times over, causing cash flow issues and concerns for companies, particularly those in manufacturing and other sectors with high energy expenditure.
From April, the UK government has revised the support mechanisms available to commercial organisations, affecting all aspects of cash flow forecasting and money management.
In this article, James Todd & Co, independent, highly experienced and full-service chartered accountants, explains what the changes may mean for your venture and how to handle rising utility costs, among other price pressures.
The Transition From the Energy Bill Relief Scheme to the Energy Bills Discount Scheme
While the names of these government initiatives may seem similar, it is essential for any commercial entity reliant on government support to mitigate soaring energy bills to understand how regime changes may affect their bottom line.
The original Energy Bill Relief Scheme (EBRS) ended on 31st March 2023, replaced with a new programme called the Energy Bills Discount Scheme (EBDS).
EBDS support will apply for the next 12 months, an extension on the original six-month proposal, and aims to implement a reduction in commercial energy costs while lifting the previous cap on wholesale pricing.
British businesses will have a discount applied to each unit on their energy bills from 1st April 2023 but without the protections offered in the earlier EBRS. The initiative applies a discount against wholesale prices instead of a blanket cap limiting suppliers' rates.
Those most affected are businesses with a high energy output, including steelmakers, and glass or ceramic producers, who receive a higher discount on the wholesale rate. However, the caveat is that discounts only apply during periods of high energy costs.
As it stands, the scheme will continue until 31st March 2024. It is worth noting that the EBDS is not solely used by profit-making businesses and is a core support system for charities, schools, hospitals and public sector entities.
Real-World Impacts of the Scaled Back Support for UK Businesses
While wholesale energy prices have dropped a little since the beginning of the Russian invasion of Ukraine, they remain high, with the UK Parliament predicting prices falling in the second half of 2023. Commercial energy bills will be discounted as follows:
- Up to £6.97 per MWh for gas
- Up to £19.61 per MWh for electricity
The Treasury estimates that a business such as a pub will save around £2,300. Still, manufacturing firms with higher energy dependency entitled to a larger discount will receive roughly £700,000 over the next year.
This support notwithstanding, it remains challenging for high-usage companies to find ways to control costs. Some organisations report additional outgoings of £200,000 per annum after applying discounts.
Managing The Impact of Higher Energy Bills on Business Cash Flow
One of the potential solutions is to apply for a government grant or loan scheme, many of which are designed to incentivise companies to cut carbon emissions or invest in sustainable, environmentally friendly technology.
While that may only be viable for organisations with the capital to invest, options are listed via the Ofgem website. Energy suppliers may also have initiatives that provide subsidies to help with upgrading equipment, such as heating systems or payment plans to reduce monthly costs.
Businesses can also investigate switching energy providers if their existing supplier cannot help or if their current tariffs are higher than others on the market. New customer discounts can make commercial energy bills more affordable.
However, we recommend analysing the terms of your existing agreement before switching since some will levy an early exit penalty if you leave the contract before the end of a fixed-term period.
Practical Ways to Reduce Business Energy Consumption
Cutting back on energy usage can reduce operating costs, but much depends on the nature of the business and areas of use which cannot be adjusted – such as running plant, powering freezers or production equipment, or running computers and servers.
There can be simple ways that, collectively, help to keep energy costs under control, such as:
- Turning thermostats down in offices and retail spaces or automating timers to avoid powering heaters during periods of closure such as overnight and at weekends.
- Installing energy-efficient LED bulbs, switching from PCs to laptops, or using smart power strips, which monitor device usage and automatically shut them down when not in use.
- Using sensors to turn off lights when not required, particularly in larger office buildings or warehouses where multiple lights and strip lights consume more electricity.
Although some measures carry a small outlay, they can be worthwhile. Light sensors reduce energy usage by roughly 30%, LED lighting requires 90% less power than fluorescent bulbs, and laptops need 50% less energy than standard monitors.
Professional Advice on Managing Business Cash Flow Pressures
Businesses can proactively ensure they utilise applicable grants or subsidies, have a competitive tariff, and reduce energy usage where possible. However, they may still find the significant increases in costs related to many other areas alongside energy difficult to manage.
Over the last year, energy costs alone have risen by over 300% for electricity and 400% for gas, so these are no small changes. Companies without a buffer within their cash flow planning may not be able to pass these huge price rises onto their customers.
We advise any organisation worried about their ability to maintain pace with their bills or struggling to keep up with other financial obligations to consult a professional business accountant at the earliest opportunity and before their finances are stretched to breaking point.
James Todd & Co works with businesses of all sizes, looking at strategic analysis of cost drivers and operational structures, forward planning and budgeting to identify risks, pinpoint opportunities, and help our clients navigate a high-cost environment without putting their business at risk.
Please get in touch at any time if you would like to discuss your options or explore ways to adjust your financing structures to cope with the months ahead before energy costs are expected to fall.
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About James Todd & Co
James Todd & Co have been providing accounting services for more than 30 years across Chichester, Farnham, Lavant, and Sussex and Hampshire businesses. Their clients trust them to provide bookkeeping, financial auditing and compliance, management accounting and financial advisory services.