How to help firms survive crippling energy bills

Energy bosses have insisted for some time that a government-backed "superfund" from which they could borrow to lower or freeze bills "is the only game in town" - as one told me last week.

Ministers and officials are now getting to the same conclusion.

How could you do it? There are a couple of ways.

Scottish Power suggested freezing all bills at current level of £1,971 for two years at a cost of nearly £100bn. That was dismissed by the current chancellor (until tomorrow) as it was not targeted enough at poorer households.

Ovo suggested that richer households would start to pay more on top of the frozen rate as they either earned and used more energy. This would be cheaper but would still run to many tens of billions of pounds according to Ovo's chief executive Stephen Fitzpatrick.

It would work like this.

The government would guarantee loans drawn from a fund provided by commercial banks, lowering the cost of that borrowing. The loans would then be repaid from bills over the next 10 to 20 years - building a bridge to a future of more renewables and more domestic supply.

What neither of these plans cover is business' energy bills.

These are not protected by the price cap and many one and two-year fixed rate deals expire in October, exposing thousands of businesses to the full horror of bills that could rise by as much as five times the current amount.

Thousands would go bust and even those that could afford it might do so at the expense of their wage bill meaning a wave of redundancies.

So what are the options to help business?

We know the government is looking at cutting VAT on energy for business - it pays 20% rather than the domestic rate of 5%. They are also looking at cuts in business rates. But even combining those doesn't match the size of the problem.

Covid-style loans might be unattractive to businesses already stuffed with pandemic-linked borrowing. This then leaves grants as an option which would cost real money rather than a loan guarantee fund, which could be kept off the government spending books. This would be like some of the bank interventions during the financial crisis.

Cash grants would be welcomed by business but would cost real money out of the door now, reducing headroom for proposed tax cuts.

Which only leaves one option - allow suppliers to businesses the same access to the big government fund as domestic suppliers.

That would materially increase the size of the fund to well over £100bn that would need repaying over many years, again meaning higher bills for longer.

But it may well be the least worst option to tackle a crisis that threatens to tip the economy into a deep recession.