Electricity and gas bills – pitiful response: Ian McConnell

IT was difficult to know what was more frustrating as the UK Government announced its pitifully inadequate response to the hike in the cap on household energy bills earlier this month.

There was the obvious point that the Johnson administration seemed entirely out of touch in terms of its apparent lack of awareness it will be difficult or impossible for millions of households to find hundreds of pounds of after-tax money to pay for hugely increased energy bills.

This lack of awareness, assuming that is what it is rather than just not caring about people’s difficulties, is something we should have anticipated given the track record. This is a UK Government which portrays itself as being on the side of ordinary people when its actions are usually quite the opposite.

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However, there had been so much talk about protecting households in the run-up to regulator Ofgem announcing the £693 per year or 54 per cent hike in the cap for a typical dual fuel customer that there was a temptation to think things might be different this time, and that the Government might actually come up with a proper solution.

And, looking outside the UK, French president Emmanuel Macron had taken decisive action to ease the pain for households, limiting rises in electricity bills to just 4%.

In contrast in the UK, delivering the massive hike that most feared following the surge in wholesale gas prices but which many hoped might have been avoided with some proper Government intervention, Ofgem declared on February 3: “The energy price cap will increase from April 1 for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers will see an increase of £708 from £1,309 to £2,017.”

Reflecting on the scale of these rises, the most frustrating thing about the situation in the UK is clearly the wholly inadequate response from a Johnson administration which seems oblivious to the financial pressures faced by ordinary households. Somehow the UK Government thinks its £350 “rebate” – crucially comprising a £200 upfront “discount” which is in essence a loan that needs to be paid back through energy bills in £40 instalments over five years and £150 of actual assistance – is adequate. Just to reiterate, the rise in the price cap for a typical customer is £693, and the actual help is £150. This £150 of support applies to most, but not all, households, although at least there does seem to be an attempt to target this element of the inadequate “rebate” at those who can least afford the rise in bills.

UK electricity and gas bill rises – price cap alarm bells must be heeded : Ian McConnell

What was also frustrating, however, was that the UK Government seemed to think it had gone out of its way to help people out. It was difficult to know whether this was entirely political spin or whether members of the Johnson Cabinet actually believed they were pulling out all the stops to help. There was something in the Tory tone (and not for the first time) that seemed to indicate they viewed themselves as munificent benefactors.

Chancellor Rishi Sunak hailed the Government’s moves in a pinned tweet at the top of his Twitter page. You might have thought the UK Government would want to skate over the massive extra cost households had been left with following its inadequate response, but seemingly not.

Mr Sunak tweeted: “1/ The energy regulator Ofgem has announced that the energy price cap will rise in April. Without action this would be very tough for millions of families. So we’re going to step in and directly help people manage those extra costs with a £350 Energy Bills Rebate.”

This was followed by a direction to an “explainer” video, featuring Mr Sunak, of course.

The Chancellor went on: “2/ The first part of the rebate spreads the extra costs of this year’s energy price shock. In October all domestic electricity customers will receive a £200 discount on their bills. People will then have five years to repay that discount in equal instalments of £40 a year.”

So, just to reiterate, that £200 is a loan and it seems odd to characterise it as a discount. If you were to receive a discount in a shop or for an online purchase, you would not expect the retailer or travel company or whoever to come looking for the money back.

Fleshing out the grand plan further, Mr Sunak added: “3/ We’ll provide more help to those who need it most by discounting council tax bills by £150 in April. People on middle incomes are struggling right now, too, so we’re providing the council tax discount to households in Bands A to D – around 80% of all homes in England.

“4/ We’re also providing local authorities with a discretionary fund of nearly £150m to help lower income households in higher council tax bands, and households in bands A-D who are exempt from council tax.

“5/ We’re also confirming today that we’ll go ahead with existing plans to expand eligibility for the Warm Home Discount by almost a third.”

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The Warm Home Discount can give a £140 reduction, which is better than nothing, but it means that a yawning gap remains for struggling households even if they become newly eligible for this scheme. The £200 loan should not be counted in analysing the support package.

If a household were to become newly eligible for the Warm Home Discount scheme, £140 plus the £150 council tax rebate would amount to help of £290. This is more than £400 adrift of the average £693 rise in the energy price cap. The situation will be worse still for those with prepayment meters, who are often lower-income customers of the energy companies.

And, in the context of the huge surge in energy bills, a near-£150m (actually £144m) fund is peanuts.

The UK Government is providing Barnett consequential funding to Scotland relating to the council tax rebate.

The Scottish Government last week announced it would spend £280m to provide £150 to every household which is currently in receipt of a council tax reduction in any band and £150 to all other occupied households in Bands A to D, declaring: “This means 1.85 million households, or 73% of all households, will receive financial support through their council tax bill or a direct payment.”

It also announced £10m of funding in 2022/23 to “continue the Fuel Insecurity Fund to help households from rationing their energy use”.

However, the big problem for households throughout the UK, including in Scotland, is that the Johnson administration’s response to the unprecedented hike in the energy price cap to a new record is woeful, no matter how loudly Cabinet members trumpet it as being otherwise.

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Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.”

While the behaviour of companies in this regard should be watched closely, these words will be of cold comfort to consumers.

More must be done by the UK Government in short order to help households. And it has rightly been pointed out many small businesses also require meaningful support amid this crisis.

There is also a longer-term issue.

Increases in the price cap on this scale arising from global shocks show the mechanisms governing the household energy market in the UK are not fit for purpose. These arrangements are hammering consumers, at the worst possible of times.

Ofgem talks about moves to “diversify our sources of energy which will help protect customers from similar price shocks in the future”.

In this context, it is worth observing that over decades in state ownership in the pre-Thatcher days, the energy sector did just fine in ensuring security of supply with long-term investments. Take, for example, in a Scottish context the success of nuclear power generation at Hunterston in Ayrshire, and huge investments in innovative hydro power schemes.

The Scottish Government should reconsider its refusal to permit new nuclear power development.

However, aside from this, it is the UK Government which has the powers to make the big decisions on energy.

And, amid the current shambles and with the woeful Tory response, it is difficult not to conclude the Thatcher privatisation spree and subsequent introduction of competition in the household energy supply market have failed consumers.

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