Households will be hit with a new green surcharge to help fund the scrapping of levies on steelworks, car factories and other energy-intensive industries.
Ministers on Thursday announced the scrapping of charges such as the feed in tariff, contracts for difference and the renewables obligation for major users so that “strategically-important UK industries like steel and chemicals remain competitive on the world stage”.
The changes will save 300 companies –which employ 400,000 people – an estimated £20 per megawatt hour on energy bills.
Whitehall sources last night said that bill payers would have to fund some of the costs of the scheme.
However, they insisted that a surcharge levied under “Household Payments Mechanism” would not be implemented until energy prices fall– it is not envisaged to come into force until 2025. And the annual surcharge is expected to be comparatively modest, with current estimates between £3 and £5 per customer.
Industries using large amounts of energy, in particular steelmaking, have been lobbying ministers for some time for support to level the playing field against overseas rivals.
Since leaving the European Union, Britain is free to scrap green levies that were introduced under Brussels rules.
UK bosses have long complained that green levies are not fairly implemented on the Continent, putting the companies they run at a competitive disadvantage.
Former business secretary Jacob Rees-Mogg said in October that it was “absolute madness” to retain the levies.
Today, Kemi Badenoch, Business Secretary said the scheme “will mean strategically-important UK industries like steel and chemicals remain competitive on the world stage”.
Grant Shapps, Energy Secretary, added: “Today’s measures will help deliver the affordable, reliable energy that these industries need to become greener, and secure jobs for the future.”
Dubbed the “British Industry Supercharger”, the subsidy is scheduled initially to remain in force for a year and is designed to replace blanket support on energy costs for businesses as it ends at the end of March.
The Government’s decision not to extend the Energy Bill Relief Scheme has proven controversial, however.
Experts have warned of a “precarious cliff edge when the business support scheme comes to an end”.
There are fears that many companies will at best be forced to halt investment and at worst collapse in bankruptcy as electricity and gas bills increase up to 80pc overnight.
Ms Badenoch said British Industry Supercharger had been “carefully crafted” to strike the right balance to support the businesses that need it the most.
She said: “We will back these businesses to keep on growing our economy and delivering high-quality jobs and investment into the UK, as well as the products we rely on for our everyday lives and work.”
Gareth Stace, director general of UK Steel, said: “UK industrial electricity prices have been uncompetitive for many years, and today, the Government took a great step towards levelling the playing field for the steel industry.
“We welcome this announcement and look forward to working with Government to ensure full price parity with European competitors. It is essential we can compete on an equal footing, in the short term, within the fiercely competitive steel market, both in Europe and globally.”
The announcement was not enough to convince the Chinese owners of British Steel to renege on planned job cuts at its Scunthorpe plant, however.
Up to 260 jobs will be lost as British Steel closes its coke ovens at the Lincolnshire works.
Jingye, which acquired British Steel in March 2020 with the promise to invest £1.2bn over the following decade, said on Wednesday that “decisive action” was required because of the “unprecedented rise” in operating costs, surging inflation and the need to improve environmental performance.
British Steel chief executive Xifeng Han said: “Last year our energy bill rose by £120m while we’ve also faced an increase of over £70 million in our annual carbon costs.
“We entered into talks with the UK Government in summer 2022… It’s important we have the correct policies and frameworks in place to back our drive to become a clean, green and successful company and we’re continuing to discuss this with the Government.
“We’re disappointed at having to make such proposals but are confident they will support a successful transformation.”