Rishi Sunak will next week unveil new government subsidies for companies’ energy bills, with all UK businesses given a limited discount on electricity and gas, and energy intensive industries handed additional support.
The new package will cost about £5bn and the subsidies are due to last for one year, according to people briefed on the plan.
It will therefore be far less expensive for taxpayers than the government’s current subsidies for companies’ energy bills, which are set to cost £18bn when the six-month scheme expires at the end of March.
Business groups are expected to be disappointed at the reduced level of future support, after warning thousands of companies could collapse due to surging gas and electricity prices following Russia’s invasion of Ukraine.
The new package, which could be announced as soon as Monday, comes after months of wrangling between Downing Street, the Treasury and the business department over the scope and cost of the arrangements.
The prime minister has come out in favour of limited universal support for businesses, plus additional help for energy-intensive industries including steel and ceramics.
The package represents a big change of stance from chancellor Jeremy Hunt, who said at the Autumn Statement in November that most businesses would not receive further support from April because the subsidies were “not sustainable”.
Hunt is now adopting a different approach amid fears that the energy crisis will continue well beyond the spring, with some analysts warning that next winter may prove tough for UK businesses and households.
Under the government’s existing package of subsidies for companies with their energy bills, the wholesale price of electricity and gas was fixed for businesses for six months.
But under the new scheme businesses will be offered a discount on the wholesale prices of gas and electricity at a certain number of pounds per megawatt hour, according to two people familiar with the plan.
Craig Beaumont, chief of external affairs at the Federation of Small Businesses, a lobby group, said: “If the universal fixed rate wholesale cost of energy is replaced by a meagre capped discount, this leaves small firms exposed.
“If prices rocket again next year, many would not get sufficient help to keep going.”
Some pubs and restaurants could also be left disappointed as until recently they were expecting more generous government help for the hospitality sector.
Kate Nicholls, head of UKHospitality, warned that businesses would go bust if support was cut too far.
The hospitality industry was promised additional help by former prime minister Liz Truss, who wanted to focus on “vulnerable industries”.
Nicholls said if the sector only now benefited from limited support through the universal element of the government’s new package, it would be a “huge matter of concern”.