MHA | UK energy price guarantee and the need for renewable technology

UK energy price guarantee and the need for renewable technology

· Posted on: October 20th 2022 · read

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Following the announcement of Liz Truss’s Energy Price Guarantee on 8 September, cutting down price volatility and providing certainty for business is the only way to give businesses the confidence to maintain growth.

Exposing businesses to the current degree of energy price volatility makes planning almost impossible, so a price cap for business is essential to allow businesses to survive, invest and move forward. Yet the 6-month guarantee is a very small sticking plaster and is simply not enough.

We’ve witnessed the economic wheels fall off the bus in the past couple of weeks. We’ve seen examples of manufacturers and food processors, large and small, facing up to 500% increase in their energy bills, which makes their business totally uneconomic.

The announced guarantee will provide a short stay of execution and may defer job losses and some price rises, but it is not long enough to allow businesses to confidently invest and grow. Many of those significantly affected will simply undertake defensive strategies due to concern about the looming cut off point. A 12–24-month guarantee is what was needed.

The government needs to fix the UK energy market. Part of that solution in the short term is ensuring businesses are less reliant on 'purchased’ power, by increasing their green credentials. Although businesses do currently receive tax relief on investments into green and renewable equipment this isn’t enough to make it economic for most companies to really make the transition and the substantial financial commitment.

The payback time for investment in renewable energy is typically 5-7 years. So, the best ways to encourage companies to sink money into renewables would be an interest free loan scheme available to fund green investment, which could be paid back over 5-10 years, effectively smoothing out energy costs. Alternatively, companies could receive accelerated or enhanced tax relief, as happens with R&D relief, where you receive in excess of 100% relief on the amount you spend.

For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us.

Read the latest tax commentary - visit our dedicated hub where we will be providing resources, advice and practical guidance on what these tax measures mean for you and your business, to help you prepare and manage their impact.

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