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Sunday, February 05, 2023

UK Government to abandon consumers to more energy price hikes

The Guardian reports that the Chancellor, Jeremy Hunt has rejected calls to prevent sharp rises in domestic energy bills for all households in his March budget – meaning millions of users will see costs soar by about 40% from April.

They say that instead, Hunt will emphasise the extra support he is giving to the poorest and most vulnerable households, including those on benefits, in what he will describe as a more fairly targeted system of support:

Demands for the Treasury to halt a planned rise in the energy price guarantee (EPG) – the discounted cost of gas and electricity to consumers – from £2,500 to £3,000 a year for the average household in the March budget have been growing in recent weeks, particularly as the wholesale cost of energy has been falling.

Because an additional £400 of extra government help with energy costs for all households, made in monthly payments since October, also ends in March, the effective rise for all but those on the lowest incomes will be about 40%.

Calls for Hunt to stop the rise in the EPG have been led by consumer champion Martin Lewis, founder of the website MoneySavingExpert.com, who has said the move would be an obvious “rabbit out of the hat” that the chancellor could afford to pull out of his red box in March.

The Labour party has also been calling for the rise in the EPG to be stopped, and for the extra costs to the government of doing so to be met through the proceeds of a more punitive windfall tax on the vast profits of energy companies.

But Treasury insiders have told the Observer that the move is not under consideration, partly because Treasury receipts from its own windfall tax on energy companies have been less than expected, and because of worries about exposing taxpayers to future market risk.

Ruling out the move, a Treasury source said: “While gas prices have fallen in recent months, they are still five times higher than the historical average, and can just as easily increase.

“If the gas price spikes, the government will need to borrow billions of pounds more. While the energy price guarantee will continue to insulate millions of households from even higher wholesale gas prices, we need to reduce the taxpayer exposure to market volatility. Insulating every household – and on an open-ended basis – could have major implications for the public finances.”

Officials said that at the time of the autumn statement last November, the Treasury’s own estimate for the proceeds of the windfall tax over five years was £55bn. But because of recent falls in energy prices, this total had fallen by £25bn, and was now anticipated to come in closer to £30bn.

However, as the paper points out, thius argument is a miscalculation and is based on poor economic management:

Analysts at Deutsche Bank say maintaining the £2,500 price cap from April would only cost the government an additional £4.5bn because gas prices are falling quickly and the subsidy is unlikely to be needed by energy firms from July onwards. Analysts also said that maintaining the household price cap at £2,500 would help lower inflation.

It is time for Jeremy Hunt to step up and rein these energy companies in.
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