The UK government has confirmed plans to reduce the amount of support businesses receive on their energy bills.

As part of the scaling back of the programme to support UK firms with soaring prices, the government will remove the cap on the unit cost of gas and electricity, and instead offer a discount on the prices charged by energy companies.

Under the new “Energy Bills Discount Scheme”, non-domestic energy customers – including beverage manufacturers, pubs and bars – will receive a discount of GBP6.97 (US$8.47) a megawatt hour for gas and GBP19.61 a MWh for electricity.

James Cartlidge, the exchequer secretary to the Treasury, said that was the equivalent to a GBP2,300 annual saving for a pub or bar, based on typical usage.

Cartlidge described the scheme as a GBP5.5bn package of “transitional support” for businesses that would run for 12 months from 1 April 2023.

“It is not sustainable for the Exchequer to continue to support large numbers of businesses at the current level, ” Cartlidge told MPs. “No responsible, serious government anywhere in the world can permanently shield businesses from this energy price shock.”

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The new energy support scheme replaces the current Treasury-funded energy bill discount, which covers the difference between wholesale prices and a “government-supported price” of GBP211 a MWh for electricity and GBP75 a MWh for gas.

The current scheme – introduced in October – is estimated to have cost the UK government GBP18bn.

Responding to the new Energy Bills Discount Scheme, UKHospitality Chief Executive Kate Nicholls said: “It was crucial for hospitality businesses to receive an extension to energy support, which has been a vital lifeline for many this winter.

 “While I’m relieved the Chancellor has listened to UKHospitality’s concerns and extended the scheme as a whole, the absence of a sector-specific package that helps vulnerable sectors like hospitality will still result in higher bills. Our analysis shows the new, lower level of support will see a total GBP4.5 billion hike in bills for the sector compared to the previous scheme.

“This will simply be unsustainable for many. With no further, dedicated support for a vulnerable sector like hospitality, I’d urge the Government to consider other measures it can take to help the sector.”

Food and Drink Federation chief executive Karen Betts added: “The government’s announcement of continued support for food and drink businesses with their energy bills is welcome. Manufacturers are under a great deal of pressure as they try to keep their heads above water while absorbing very high and volatile energy costs in order to keep the cost of everyday food and drink as low as possible for shoppers.

“This support recognises the criticality of the food and drink supply chain and that our businesses use constant levels of energy year-round, and it should help slow record levels of food and drink inflation.”

Despite wholesale energy prices having fallen to below levels seen before Russia’s invasion of Ukraine, bills continue to rise for UK businesses and households.

UK Chancellor of the Exchequer Jeremy Hunt said he had asked the energy watchdog Ofgem whether further action was needed to ensure market forces were working correctly.

“Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine,” he said. “But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.

“Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is action is needed to make sure the market is working for businesses.”

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