Britain is watching yet another crisis unfolding at the moment and this time it’s on energy bills.
That may sound a tad hyperbolic but there is a very strong chance that the energy price cap – the only thing keeping a lid on household energy costs – will rocket 50 per cent in April.
Analysts at Cornwall Insight forecast that the average domestic dual fuel price cap tariff, the pricing people move to by default when fixed deals end, will rise to £1,925 a year – up £648 from £1,277 now.
Keep warm: According to Cornwall Insight, the energy price rise is expected to cause bills to shoot up by half a percent for people on dual-fuel tariffs with standard price caps.
The next revision arrives in autumn and they suggest on current data that the price cap could then climb to £2,255 for winter 2022-23.
If you’re anything like me, energy bills will feel like a painful monthly expense and one that you really aren’t looking forward to rising by £54.
And trying to switch won’t do you any good, the only deals on offer are fixed price ones way above the price cap level.
However, Many This is Money readers, just like me, will be able accept the hike with a smile and see it as another cost of living.
However, this will not be the case for everyone.
Warnings that rapidly climbing energy costs will lead to many vulnerable customers potentially having to choose between heating and eating have been arriving thick and fast for some time – and have stepped up since the start of the year.
National Energy Action claims that the price hike in April could increase the UK’s fuel poverty rate from 4million to 6million.
One silver lining of the situation is that it occurs as summer heats up. However, springs in Britain (and summers elsewhere) are notorious for not being always that hot. The fuel price increase is predicted to be worse when the evenings draw in.
No amount of future plans to better insulate our homes, or energy saving tips – be they useful ones or of the daft ‘do star jumps and cuddle your pet’ variety – are going to bridge the gap between already high prices and the even bigger bills on their way.
Therefore, the Government must quickly develop a plan to assist struggling families.
No amount of future plans to better insulate our homes, or energy saving tips – be they useful or of the daft ‘do star jumps and cuddle your pet’ variety – are going to bridge the gap
This should not be a long-term plan, but rather a series of measures to provide immediate relief.
For the transition to greener energies, this is essential. But the moment has past for additional gas storage, better regulation and not being so dependent on supplies overseas.
It is now that we need to figure out how to help pensioners with lower incomes and households who have been financially harmed by the rise in energy prices.
As a wealthy developed nation we believe in having a financial safety net and making sure people’s homes are adequately heated and they aren’t sitting there in the cold and dark is part of ensuring a decent minimum standard of living.
Now comes the tricky question: What should we do? We don’t have a silver bullet.
There has been plenty of talk of a VAT cut, which seems like an imminently sensible move, but the tax is only 5 per cent on energy bills and Cornwall Insights reckons this would shave just £90 on average off dual fuel bills.
A VAT cut would benefit wealthy households, according to critics. But I would argue that’s a red herring: there is a lot to be said for the odd universal benefit and a nation that hands out Winter Fuel payments to pensioners both rich and poor shouldn’t worry too much about a temporary VAT cut for all.
Other options, according to Cornwall Insight in New Scientist, include deferring recouping costs for failed suppliers, which would also save about £90, moving green levies to general taxation (£160), and deferring payment of energy network costs (£330).
Meanwhile, either direct financial support to customers, or loans to suppliers to mitigate energy price rises could both be worth about £500 off bills.
These are two big guns, which could be rolled out but would still cost most.
Longer-term we need a much better plan for Britain’s energy security than our laissez-faire, fill your boots, it’ll be grand way of thinking
The former could be targeted only at the more financially vulnerable – although measuring that is hard in itself – with the extension of the existing Warm Home Discount payments and a big bump up from their £140 level.
This would involve controversially giving private sector businesses money. Although it seems like a strange idea, and a difficult sell for taxpayers, this is becoming increasingly popular, according to an FT frontpage report.
The government could pay suppliers payment if wholesale gas prices increase above a set level. This would be in exchange for customers not paying that, softening price hikes and smoothing out prices.
It would be a great way to make the concept more appealing: energy companies might return some money to the government if prices drop below a particular level.
Whether any of these initiatives – either at the cautious or bold end of the scale – goes ahead remains to be seen – and we may get a package of them.
Something needs to be done though and longer-term we need a much better plan for Britain’s energy security than the laissez-faire, fill your boots, it’ll be grand way of thinking that has dominated the recent past.