LONDON: UK businesses are hopeful Chancellor of the Exchequer, John Healey, will cut levies from their electricity bills in his budget after being told that help with energy costs is the government’s top priority for firms, according to industry leaders familiar with the plans.
Healey has promised to give companies “breathing space”, saying last week that he would get rid of regulatory paperwork to save them an estimated £800mil a year and be a chancellor “who backs business in Britain making a profit”.
The British Chambers of Commerce said a small cut in red tape would be a “welcome first step”, but that companies expect further measures.
Jonathan Reynolds, the UK business secretary, urged Healey to make cutting the cost of energy his top issue for businesses, according to two people familiar with the discussions.
Reynolds fears Britain’s high energy costs are a dead weight on business and a drag on growth, a third person said.
UK businesses are up in arms over energy costs, which are among the highest in Europe.
As well as having to cover green and social levies in their bills, they complain they are punished by the United Kingdom’s dependency on gas in a marginal pricing system where the final unit of supply sets the overall price.
The Iran war, which has driven oil prices above US$100 a barrel from just US$60 at the start of the year, has made the issue more immediate.
Reynolds and Healey are considering removing the contracts-for-difference programme for clean-energy generators, according to one of the people who has spoken to them.
Taking those off business bills and moving the costs to taxpayers would save about £2bil a year, according to the data from the Office for Budget Responsibility.
An alternative approach, removing the Climate Change Levy, would also save £2bil.
Former Chancellor Rachel Reeves pioneered a similar approach last November.
Reeves removed 75% of the renewables obligation from household bills to address cost-of-living concerns and mechanically reduce the official inflation rate at teh time.
Around £2bil a year was moved to general taxation. Under that programme, the cost will move back onto bills in 2029 and 2030.
Healey may take the same approach by making any reduction in energy bills time-limited. When he spoke with industry trade groups last week, he told them he recognised that energy costs topped their list of concerns.
A Treasury spokesperson said that “decisions on tax are a matter for the chancellor to set out at fiscal events”.
The Department for Business, Innovation, Science and Trade said budget matters were for the Treasury.
The hopes for energy bill relief follow a series of economic announcements:
Healey has given some business support already.
Pubs, social clubs and live music venues have had a 20% cut to business rates, helping around 32,000 venues. Roughly £210mil is also being spent bringing boarded-up high streets back to life.
The lead-up to the budget has been different from the Labour government’s first two budgets under Healey’s predecessor, Rachel Reeves, with less speculation about potential measures and more rhetoric about helping businesses.
“The government has realised the narrative about business and wealth creation has been extremely negative,” PIMCO’s senior adviser for the United Kingdom, Rupert Harrison, told Bloomberg Radio on Monday.
“I think they do realise that’s having an impact on investment and location decisions and they want to try and change the narrative.” — Bloomberg
