Government / EAMA Updates

28 Sep 2022

Through BFPA’s membership of EAMA, we receive regular useful updates which may be of interest to members – a summary of several recent topics is found below.

Please note that BEIS is asking for continuing feedback of evidence and [sensible] opinion on energy support, so please feel free to contact BFPA if you have any opinions you would like to share.

Energy support covers contracts agreed since April 1

The government has given details of its energy price support package for businesses, charities and public sector organisations. An important point in the new Energy Bill Relief Scheme is that it will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts.

The scheme will apply to energy usage from 1 October 2022 to 31 March 2023. The government has already announced that BEIS secretary Jacob Rees-Mogg will review how support for firms will work after that six-month period.

The energy market is complex and the impact on companies varies greatly, as has been shown in several surveys of by EAMA members. There are huge variations in the level of increase in bills faced by companies and in their ability to pass on costs to customers. It will be especially important to support firms facing large increases that compete in international markets, EAMA maintains.

https://www.gov.uk/government/news/government-outlines-plans-to-help-cut-energy-bills-for-businesses

Link to a fuller explainer document – this includes some examples on how the scheme will impact on certain types of current supply contracts.

https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers

The intention is to publish a review of the scheme in 3 months. This review will consider further support to those business users most vulnerable to energy price increases. These are likely to be those least able to adjust their energy usage. Those less likely to be considered vulnerable to energy price increases (e.g. larger businesses that are not energy-intensive) are encouraged to use the six months support to identify measures they can take to better protect themselves against high energy prices.

Fixed or variable energy contracts – your choice

Firms on variable/flexible contracts will be contacted by their suppliers and invited to choose whether they wish to move to fixed contracts. This is stated in further government detail about how its Energy Bill Relief Scheme (EBRS) will work over the six months from October 1.

Non-domestic energy suppliers will be compensated “for the reduction in wholesale gas and electricity unit prices that they are passing onto non-domestic customers”. The discount applied will be in pence per kilowatt hour (p/kWh).

For fixed contracts, the discount will reflect the difference between the government supported price and the relevant wholesale price for the day the contract was agreed. The government will publish the wholesale prices used for calculating this for each day from 1 April 2022.

For variable, deemed and all other contracts, the discount will reflect the difference between the government supported price and relevant wholesale price, but be subject to a ‘maximum discount’ that “will determined at the beginning of the scheme”.

Businesses on variable / flexible contracts will be invited to choose if they move to fixed contracts.

Third party intermediaries/energy brokers have no influence over the per unit cost reductions that will be applied to energy costs under the scheme, the government says.

Business groups across the economy are urging continued support for their sectors when current arrangements end, at the end of March 2023. BEIS secretary Jacob Rees-Mogg is conducting a three-month review, to identify those firms most vulnerable to energy price increases.

*EAMA understands that the review led by Chris Skidmore MP of how the UK can best reach its net zero target is due to report before Christmas. The review was announced by Liz Truss in her first speech to the Commons as prime minister. The approach is likely to be one of pragmatism, with a stronger focus on keeping down energy costs than we have had hitherto. There will be keen interest in how UK advanced engineering and manufacturing can practically contribute to that, and how government can help.

NI increase axed

HM Treasury has confirmed that the 1.25 percentage point rise in national insurance brought in by Rishi Sunak this year is to be axed from November 6th. The tax would also have applied to workers of pensionable age from next April, when it was to become the Health and Social Care Levy.

It is hard to see how it will make much difference to the jobs market at present, as that remains tight. Unemployment is at an historic low of 4%. On the other hand, it is part of a package of tax cuts, including up to 40 new low-tax, low-regulation enterprise zones, that sends a powerful message that this government will be quite different to its predecessor.

https://www.gov.uk/government/news/national-insurance-increase-reversed

Kwarteng’s tax-cutting Growth Plan

Chancellor Kwasi Kwarteng unveiled his Growth Plan in what amounts to an emergency budget on Friday 23rd September. Main points included:

  • Rishi Sunak’s National insurance increase of 1.25 percentage points (10%) is abolished from November 6th
  • Corporation tax rise next April is cancelled, keeping it at 19%, “the lowest rate in the G20”
  • Annual Investment Allowance (AIA) £1 million level made permanent.  [A long-standing business ask.]  It was due to return to £200,000 in March 2023
  • Basic rate of income tax cut to 19% in April 2023, one year earlier than planned
  • The “additional rate” of tax applied to high earners is scrapped from April 2023, so there will be a single higher rate of income tax of 40%.  The aim is to “attract the brightest and best” to the UK
  • Government to “change regulations to increase investment by pension funds into UK assets”
  • Regulations to be changed to “incentivise investment into Britain’s science and tech companies”
  • Stamp duty cut immediately, and abolished for first time buyers up to £425,000
  • Alcohol duty frozen for a further year
  • Government sets target of “2.5% trend rate of growth”. The tax cuts and reforms are “the biggest package in generations – send a clear signal that growth is our priority”
  • New Investment Zones (IZs) to “bring business investment and release land for new homes”.  Talks with 38 areas in England, listed in factsheet (link below).  Each IZ to give time-limited tax cuts and liberalised planning rules.  “These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities.”   They have been described as being like turbo-charged freeports
  • Accelerating new road, rail and energy projects “by removing restrictions that have slowed down progress” on getting consent – which takes 65% longer now than in 2012
  • Government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back financial services
  • Responsibility for compliance with IR35 rules on self-employment are being placed back on the contractor.  It had been out on the engaging company, if it was a larger employer, and with public sector organisations.  The aim is to avoid people being caught wrongly by IR35 due to cautious employers.  The greater practical effect will be surge in self-employment and sharp decline in IR35 compliance levels, as HMRC is not geared up to enforce effectively.
  • The Office of Tax Simplification is being abolished, and the aim of simplification is to be embedded in the institutions of government.

EAMA Comment: The Growth Plan is every bit as radical as forecast and is in line with Liz Truss’s emphasis on going for growth.  To supporters, it is the sort of radical thinking that is needed to get the economy moving.  To critics it is betting the country with massive additional borrowing.

They note that the Office for Budget Responsibility has not been asked to give a view – unsurprisingly, perhaps.  The OBR has said that freeports will add little, net, to the UK economy and may have the same view of IZs.

The tax cuts give business more than it has been asking for.  In the short term, it is hard to see how abolishing the National Insurance increase will have much impact on recruitment in an extremely tight labour market, but unemployment is forecast to rise in the next couple of years and the announcement is part of a strong package of measures aimed at attracting investment and driving growth.

The Growth Plan comes hot on the heels of the energy bill support.  It remains to be seen, whether the government will also increase spending to invest in infrastructure, skills and business productivity and performance.

Kwarteng has talked about the need for supply side reforms.  These are sometimes categorised as reforms to the labour force, capital, technology and regulation.

Relevant to this, the government has brought forward the Retained EU Law (Revocation and Reform) Bill, controversial legislation to get rid of EU rules rapidly with minimum Parliamentary scrutiny.  This is predicted to lead to widespread labour reform, with the Working Time Directive and its equivalent for mobile workers early targets but sweeping other reforms.

In labour reform, a huge challenge remains to improve skills.  The new government’s approach, especially for advanced engineering and manufacturing, is not yet clear.  The last government focused on technology innovation rather than adoption and business improvement.  It remains to be seen whether that will change,  beyond the tax reforms just announced.  There is a need for a coherent national plan for advice and support for the advanced engineering sector, but whether the government agrees is doubtful.  It is focused on government “getting out the way” of business.

There will be much interest in government’s approach to channelling pension fund investment.  Debate so far has brought warnings about trustees’ legal duties to pensioners, which presumably will be addressed in legislation.

Kwarteng’s headline statement made no refence to manufacturing.  EAMA is keen to establish whether this government understands the importance of the sector to the economy, whether it agrees with the last government that there is an imperative to “reverse the historic decline of manufacturing in the UK”, and what contribution it will make, if any, beyond the extensive tax reforms announced today.

In that context, it is relevant to remember Singapore.  That island state is well-known for its services and innovation.  Less well-known is that Singapore gets 20% of its GDP from manufacturing (in the UK it is 10%) and has a public commitment to raise that to 30%; and a plan for doing so.

Critics might say that the Office of Tax Simplification is being scrapped because under the Plan tax will become much more complicated due to the various freeports and enterprise zones.

Links:

https://bills.parliament.uk/bills/3340/publications

https://www.gov.uk/government/publications/the-growth-plan-2022-documents

Factsheets on each of the major measures can be found here:

 

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