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The Treasury spent almost half a million pounds on an unused emergency scheme for energy traders launched by Liz Truss that was quietly closed earlier this year.
The energy markets financing scheme (EMFS) was devised by the Treasury and the Bank of England as a £40bn government-guaranteed backstop fund to provide stability for energy and financial markets.
The scheme was designed to offer energy traders liquidity to deal with massive margin calls – demands from brokers to deposit further cash or securities to cover possible losses – but was shut in January as a sharp fall in wholesale gas prices earlier this year eased pressure on energy firms.
In response to a freedom of information request by the Guardian, the Treasury said it spent £465,000 on “external technical consultants to support the creation of the EMFS”.
It said that 11 commercial banks and 20 energy firms were invited to technical video calls with the Treasury relating to the scheme. Energy firms would have applied jointly with a bank but no applications were made during a window from October to late January.
FTI Consulting, the global management consultancy, received £400,000 for its advisory role, while the law firm Hogan Lovells received £65,000.
The government contract was originally worth up to £4.9m for FTI to provide market research and consultancy services, according to analysis by the data firm Tussell.
Truss announced the scheme in September as part of a package of measures to prevent the energy crisis causing further damage during the winter. The then prime minister also announced support for households and businesses, both of those schemes were later pared back to reduce the cost.
The Treasury said: “The scheme was introduced as part of a range of contingency measures to support the energy sector.
“Since the launch of the scheme prices in the wholesale gas markets have declined markedly and this has reduced some of the pressure facing eligible energy firms.”
It added: “Due to improvements in market conditions since the launch of the scheme, energy firms were able to access the necessary lines of credit from commercial lenders without the need for the government-backed guarantee.
“The EMFS was designed to supplement existing commercial financing where this alone was not sufficient with penal pricing and conditions upon drawdown set so it would only be used if commercial and competitively priced financing was unavailable on the market. It was not intended to replace commercial lending.”
The Bank of England refused to state how much it spent on its part in the creation of the EMFS.
Industry sources said that strict conditions preventing companies paying bonuses to executives or dividends to shareholders after using the scheme had also deterred energy companies.
The government’s spending on energy support schemes has been under intense scrutiny as households and businesses attempt to cope with the high bills inflated by the gas prices linked to the war in Ukraine.
In his budget, Jeremy Hunt made a U-turn on a plan to make household support less generous but has stuck with a cut in financial energy aid for businesses, which began on 1 April.
The support for firms has been labelled “scattergun” by business groups, which have warned that many are now considering closure in the face of unaffordable bills.
Kate Nicholls, the chief executive of UKHospitality, which represents pubs, restaurants and hotels, said: “The significant reduction in energy support comes as a hammer blow to thousands of hospitality businesses that are already struggling with extortionate energy bills that are already double what they were a year ago.
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“This could not come at a worse time as venues continue to also grapple with record food and drink price inflation, which is showing no signs of slowing down.”
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