Global gas prices are soaring and millions of British households face a huge shock when the tariff cap — intended to protect us from profiteering by suppliers — is raised in April.
City estimates suggest that unless the surge in wholesale prices eases, the average bill for the 11 million British citizens on standard tariffs could jump by around £700 a year.
Homeowners already faced with a large rise in national insurable contributions in April, to cover the NHS and other social care costs, would feel a bit more pain if they were to receive additional bills at this level.
The jump in gas prices as the world emerged from Covid-19 lockdowns was not anticipated, and has wreaked havoc on the UK’s energy market, which was once one of the most competitive among advanced countries.
Additional bills of this magnitude would be a major blow to homeowners who already face a significant rise in their national insurance payments in April in order to help pay for social services and the NHS.
Deregulation of the gas market in the 1990s — where consumers were for the first time able to choose their supplier — opened up an industry dominated by a handful of big suppliers. This gave people in Britain the opportunity to choose from a wide range of industrial and domestic suppliers. The price war encouraged users to move between firms in search for the best deals.
It seemed to offer market competition at its best — favouring the consumer and encouraging the energy companies to be more efficient.
Today, things look very different. The country has been hit hard by sky-high prices for gas on the international market. 26 suppliers collapsed and more are almost certain to follow.
The boss of the nation’s second largest supplier, Stephen Fitzpatrick of Ovo Energy, compares the situation to the financial crisis of 2008, when the government came to the rescue of High Street banks.
Yesterday, suppliers met Energy Secretary Kwasi Kwarteng to demand action — in other words, bailouts.
Labour insists on domestic consumer rescue through suspension of 5 percent VAT that we pay for our electricity and gas bills. (Labour seems to have no awareness that public finances are at a critical juncture, with borrowing this year projected at £183 billion.)
The boss of the nation’s second largest supplier, Stephen Fitzpatrick of Ovo Energy, compares the situation to the financial crisis of 2008, when the government came to the rescue of High Street banks
There can only be sympathy for those who are elderly and have to deal with high utility bills.
We already give those over 66 a £200 Winter Fuel Allowance but the case this year for a second payout to them, and for extending it to the most needy households, is overwhelming.
Many of the companies that demanded bailouts were just plain ignorant, however. Numerous unprepared, newcomers entered the energy market hoping to reap quick profits by exploiting the global gas market’s abundant supplies.
Many deals that were too good to believe, including bargain-basement tariffs for consumers, was based on the false assumption of low gas prices.
What’s more, there are huge differences between the chaos in the energy market and the financial crisis several years ago. The majority of energy problems have occurred among small providers. However, the large firms that are regulated by Ofgem have largely absorbed the effects.
The 2008-9 financial crisis saw the bank deposit and cash access of many people at risk. This made it necessary to take care of all aspects.
However, since the outbreak, every type of business in the country has demanded assistance from the government, whether they are steel or hospitality businesses.
Businesses have adapted to the VAT cuts, guarantees government loans, bailouts and furloughs offered by companies.
Even though they may feel it is difficult, they can’t depend on government assistance forever. The energy market has become a storm. A perfect storm that could be avoided if previous governments hadn’t made so much of the energy policy.
Our determination to make carbon emissions net-zero by 2050 was the catalyst that set off the storm. This goal was achieved at a rapid pace, leaving us completely dependent on imports from abroad.
Although the Government is now largely done with burning coal, they have rejected many opportunities for shale gas from the North-West. This has made it financially impossible to explore the North Sea oil fields. Shell recently pulled out from investing in Cambo Oil and Natural Gas Block off Shetland.
Meanwhile, our nuclear power stations don’t have the capacity to make up the power gap when our turbines and solar panels don’t work.
Even worse is the fact that we failed to make investments in gas storage facilities. We are now exposed to market fluctuations because we do not have the same strategic reserves as European neighboring countries.
Here’s the explanation for the staggering 250% increase in wholesale gas prices, which reached a new record of 470p per thermal before Christmas.
Asia’s recovery from the pandemic saw a surge in natural gas demand. Cargoes of natural gas headed for Europe and Britain became diverted to the countries that would pay the most.
The stresses have been magnified many times over by the new ‘Cold War’ between the West and President Putin over Ukraine. Putin’s Russia supplies most of the gas to Europe and, since his relations with the West are at an all-time low, he is limiting supply and cranking up the price.
The stresses have been magnified many times over by the new ‘Cold War’ between the West and President Putin over Ukraine
However, there’s another cause for this rise in prices that British homeowners can’t blame on Putin. Theresa May bears the responsibility. It was she who in 2017 introduced the ‘temporary’ price cap, limiting what energy suppliers can charge, to thwart a similar proposal from Labour’s then-leader Ed Miliband.
In spite of fierce warnings from the ‘Big Six’ energy companies that it would discourage investment in new resources, technology and storage, she pressed ahead.
It is a result that while the price cap holds down 11 million people who are on the Standard Variable Tariff, which fluctuates with market prices, it is killing those companies without the capital to continue the cap at a time when wholesale prices surge.
Consumers are suddenly forced to switch suppliers or tariffs, without their consent. Corporate failures also result in huge financial losses for the taxpayer.
Theresa May bears the responsibility. It was she who in 2017 introduced the ‘temporary’ price cap, limiting what energy suppliers can charge
Earlier this month, the Government provided temporary funding of £1.7 billion to energy supplier Bulb, which has 1.6 million customers, after it ran into difficulties because its pricing model was so flawed.
Ofgem, the energy regulator cautioned that the cap was not a useful tool.
Instead of a six-monthly review of the cap, which can unleash a huge jolt to consumers — as will happen this April — it wanted a more flexible approach, with the price cap moved on a monthly basis, making it easier for both consumers and companies to adjust to the new system.
My proposal is different. Eliminate the cap that causes such severe distortions in the market.
Stop the opposition from the North Sea. Britain lies on the shores of a vast natural gas reserve. This is why it’s ridiculous that the people who live there are experiencing short-term pain as they struggle to find reliable fuels.
Subsidy must go to seniors and those most in dire need. It should not be possible to support gas suppliers who, in good times, enjoyed windfall profits at low wholesale prices.