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UK unveils 40 billion-pound winter energy bill bailout for businesses

Liz Truss, UK prime minister, departed 10 Downing Street in London, Sept. 7. "There's a very real danger, before we put in place our business scheme, that cafes, pubs, and shops could go out of business, and we simply couldn't allow that to happen," Truss said Tuesday.Hollie Adams/Bloomberg

The British government unveiled a multibillion-pound bailout to help companies with their energy bills this winter amid soaring prices that threaten to put many out of business.

Under the estimated 40 billion-pound ($45 billion) plan, announced Wednesday in a statement, the government will cap the wholesale energy prices that feed into gas and power contracts for businesses for six months. Thereafter, a review will determine whether ongoing support is needed for specific sectors.

The cap for businesses is set at 21.1 pence per kilowatt-hour for electricity and 7.5 pence for gas, the government confirmed, after Bloomberg News reported the numbers Tuesday. That would impose a discount of roughly 50 percent on the current wholesale prices this winter, but the markets remain volatile, and the exact discount for each business depends on when it signed a contract.

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The government is trying to shield companies from the worst effects of energy prices that have soared since Russia squeezed pipeline flows to Europe after being hit with sanctions over its invasion of Ukraine. Documents seen by Bloomberg two weeks ago estimated the package may cost 21 billion to 42 billion pounds over six months. It is separate from a 130 billion-pound plan to help households with their energy bills.

“There’s a very real danger, before we put in place our business scheme, that cafes, pubs, and shops could go out of business, and we simply couldn’t allow that to happen,” Prime Minister Liz Truss told reporters Tuesday during a trip to New York. “That’s why it is right for the government to take the steps that we’ve taken.”

Yet some industry groups want the government to do more over a longer period of time. Make UK and the British Chambers of Commerce said the bailout should be extended beyond six months, and UKHospitality said the administration still could reduce value-added tax and ease business tax rates.

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“We will not relent in our pursuit of a more comprehensive package to safeguard businesses and jobs,” said Kate Nicholls, chief executive of UKHospitality. The government should “ensure that there is no cliff edge when these measures fall away.”

In the United Kingdom, business energy costs aren't limited by the Office of Gas and Electricity Markets' household price cap or by the government's Energy Price Guarantee for households, so many small businesses have closed in the face of seismic jumps in their bills.

Under the new plans, businesses that have signed fixed contracts since April 1 will have their rates retroactively discounted to equalize the price per unit of energy. Companies on variable rates and large users on flexible contracts that decide when to hedge their energy also will be eligible for support, subject to a maximum discount.

All businesses, regardless of size, will be eligible for the subsidy. That may cover some of the nation’s biggest companies — such as gas producers and banks — alongside pubs, cafes, and small retailers.

“The package will ease worries about otherwise viable businesses shutting up shop, and smaller companies, especially, will benefit from the discounted rate,” said Matthew Fell, chief policy director for the Confederation of British Industry.

The proposal also covers public-sector organizations, hospitals, charities, and consumers in Northern Ireland, which aren’t covered by the wider consumer package already announced.

Even with the government's help, businesses still will be paying much higher costs than usual to keep running. Before energy prices started rising last year, wholesale rates were fairly steady for years at about five pence for electricity and four pence for gas.

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Supplier and broker charges still can be added to the new business rates, allowing for competition in the market and more variation in total bills than in the household measure.

That cap on variable tariffs for the next two years is 34 pence for electricity and 10.3 pence for gas. However, those also take into account costs such as sales taxes, and environmental and network levies.