Recommendations & Conclusions
3 items
4
Conclusion
Fifty-Eighth Report - Energy bills supp…
Deferred
HM Treasury and the Department do not fully understand the pressures the non-domestic sector will face when the EBRS ends in March 2023, or the potential risk of insolvencies. Many organisations are suffering financially from the aftermath of the pandemic and this has been exacerbated by recent high energy prices. …
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HM Treasury and the Department do not fully understand the pressures the non-domestic sector will face when the EBRS ends in March 2023, or the potential risk of insolvencies. Many organisations are suffering financially from the aftermath of the pandemic and this has been exacerbated by recent high energy prices. The Department wanted the EBRS to achieve economic benefits, but it risks undermining this if its decision to withdraw support results in increased insolvencies. From April 2023, support for the non-domestic sector will reduce significantly when the Department replaces the EBRS with the Energy Bills Discount Scheme (EBDS) if energy prices remain high. While gas prices have recently fallen significantly from the record-high levels last year, some non-domestic consumers will not feel the benefit if they are trapped in fixed tariffs that were set in late- summer 2022. Additional financial support for energy bills is available for Energy and Trade Intensive Industries, but not for other sectors that can have high energy usage, such as the hospitality sector. HM Treasury expects that other changes from April 2023, such as reduction in business rates, will offset reductions in energy bills support for these sectors. The challenges of the non-domestic sector dealing with rising energy bills has exposed the lack of regulation and visibility that Ofgem and the Department have over the way non-domestic energy market operates. Recommendation 4a: The Treasury should, in parallel to its Treasury Minute response, provide details of its analysis of how the changes to business rates, taxes and energy support will affect businesses across different sectors, and outline how Energy bills support 7 it will ensure that businesses will not face a financial cliff edge after March 2023. It must also monitor and report on the effectiveness of the additional financial support made available to Energy and Trade Intensive Industries in ensuring the resilience of those industries. Rec
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Government response AI summary
The government agrees but deflects, stating the department will use findings from Ofgem’s non-domestic market review to inform future actions, with further details to be set out in the summer and plans to be taken forward by Autumn 2023, rather than the Treasury providing an …
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HM Treasury
26
Conclusion
Fifty-Eighth Report - Energy bills supp…
Deferred
The approach to pricing electricity in the UK – known as marginal pricing - means that high wholesale gas prices results in high energy bills for consumers. This is because all electricity generators in the market are paid a fixed price per unit of electricity, which is determined by the …
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The approach to pricing electricity in the UK – known as marginal pricing - means that high wholesale gas prices results in high energy bills for consumers. This is because all electricity generators in the market are paid a fixed price per unit of electricity, which is determined by the most expensive bid needed to meet demand, which currently is often provided by gas plants. Therefore, wholesale electricity prices will be exposed to gas prices even as the proportion of gas generation decreases as renewable electricity generation increases. The energy bills support that government introduced to help both domestic 59 Qq 144, 195 60 Ofgem, Retail market indicators - Breakdown of the default tariff price cap (GBP £, direct debit), 1 October 2022 61 Q 102 62 Qq 15–16 63 HM Treasury, Spring Budget 2023, HC 1183, March 2023 64 Q 143; C&AG’s Report, para 3.22 65 Q119 66 Q 17 20 Energy bills support and non-domestic consumers with their bills in light of the unprecedented high prices in wholesale gas prices that the government estimated, at the end of December 2022 would cost the public purse £69 billion over the schemes’ life.67
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Government response AI summary
The government agrees with the conclusion and states it aims to publish a second Review of Electricity Market Arrangements (REMA) consultation in Autumn 2023. The REMA programme will consider various options to protect consumers from future price spikes and ensure they benefit from lower cost …
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HM Treasury
28
Conclusion
Fifty-Eighth Report - Energy bills supp…
Deferred
We asked about whether the vast majority of the additional cost of energy to UK customers was going into increased profits for the energy sector. Energy UK told us that in looking at decoupling electricity and gas, the government should look at ensuring cheaper prices in the long term. Energy …
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We asked about whether the vast majority of the additional cost of energy to UK customers was going into increased profits for the energy sector. Energy UK told us that in looking at decoupling electricity and gas, the government should look at ensuring cheaper prices in the long term. Energy UK told us renewable energy companies that have been built under contracts for difference have been paying back in the last 18 months and as a result consumers have seen discounts on bills. It also highlighted the importance of government not rushing through reform to avoid unintended consequences such as high energy bills.72 67 C&AG’s Report, para 7 and Figure 2; Ofgem, What drives wholesale electricity prices in Britain?, 15 July 2016; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022 68 Qq 121–126 69 Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Summary of responses to consultation, 7 March 2023 70 C&AG’s Report, Early contracts for renewable electricity, Session 2014–15, HC172, 27 June 2014, Figure 4 71 Q 121 72 Qq 2, 17 Energy bills support 21
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Government response AI summary
The government agrees with the committee's observation and plans to publish a second Review of Electricity Market Arrangements (REMA) consultation in Autumn 2023. This programme will consider various options to shield consumers from future price spikes and ensure they benefit from lower cost renewables, with …
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HM Treasury