Energy Prices Decrease as Interest Rates Increase – where does this leave UK Businesses?
Following the UK government announcing that UK businesses will benefit from a reduction in energy costs to help combat rising energy costs, details of the proposed scheme have now been released.
Under the scheme, a discount will be automatically applied to the bills of those businesses that are eligible to receive it, namely businesses that are:
on existing fixed price contracts that were agreed on or after 1 April 2022
signing new fixed price contracts
on deemed / out of contract or variable tariffs
on flexible purchase or similar contracts
There are a number of limited exclusions, but for the most part the scheme will be available to the majority for a minimum period of 6 months.
The scheme will operate by discounting wholesale gas and electricity unit prices, with the UK government picking up the cost.
With inflation currently at 9.9% and following today’s announcement by the Bank of England that interest rates will be increased to 2.25% (a rise of 1/2 % and the highest since 2008) reducing the cost of energy over the Winter months is very welcome.
However, the discount will have to be re-couped by the UK government somehow, and with many businesses concerned that the discount only applies for usage between 1 October 2022 until 31 March 2023 are cash flow pressures simply being kicked further down the road?
Balancing director duties, managing supply chain distress and addressing more general inflationary cost rises means that for many businesses times are still very challenging.
In their July figures, the Insolvency Service reported that “After seasonal adjustment, the number of company insolvencies in Q2 2022 was 13% higher than in Q1 2022 and 81% higher than in Q2 2021. The number of creditor voluntary liquidations increased to the highest quarterly level since the start of the series in 1960”. The next set of statistics will be available at the end of October, although we do not expect that the picture will be rosy, given the continued pressures faced by many businesses.
There are steps that directors can take to manage risk and our Thought Leadership Library includes a number of quick guides designed to support and inform UK businesses on many of the issues mentioned in this blog.