Early end to price freeze leaves ‘huge uncertainty’

Industry commentators have welcomed the prospect of more targeted support for energy bills following the announcement that the government’s Energy Price Guarantee will remain in place for just six months, rather than two years as originally planned.

However, they have also warned that households now face “huge uncertainty” over what will happen after the new cut-off date in April.

One energy retailer told Utility Week the announcement came as a shock to the industry, with suppliers being “left in the dark” and receiving no forewarning from government.

The Energy Price Guarantee unveiled by prime minister Liz Truss last month capped unit prices for gas and electricity from the beginning of October at levels that limit the annual energy bill for a typical household to £2,500.

The difference between the capped unit rates and wholesale energy prices is being covered by the government, which last week introduced legislation to impose a revenue cap on low-carbon generators in 2023. The Energy Prices Bill includes arrangements for excess revenues to help offset the cost of the government’s energy bills support schemes.

While there has been widespread support for helping customers with the cost of energy, particularly vulnerable households, the Energy Price Guarantee has been criticised for being untargeted and expensive, with a group of academics from the University of Cambridge warning that the measure would raise the risk of “stagflation”.

In an emergency fiscal statement on Monday morning (17 October) that sought to reassure financial markets following his predecessor’s mini-budget, new chancellor Jeremy Hunt announced that the Energy Price Guarantee will be brought to an early end in April.

He said this would allow the government to develop a new approach that will “cost the taxpayer significantly less than planned whilst ensuring enough support for those in need”.

National Energy Action chief executive Adam Scorer described the move as “an almighty trade-off”.

“In seeking the confidence of markets, the government has created huge uncertainty for households,” he stated. “Everyone knows why decisions have been made at breakneck speed, but there are questions that need to be answered, and answered quickly.

“Who will still get support? Will it include vulnerable households not on welfare benefits? Will that support be deeper for those in greatest need?”

He continued: “Households on the lowest incomes are already rationing their energy usage to dangerous levels. £2,500 is beyond their means. Many vulnerable people were holding on by their fingertips. Government has to be very, very careful it doesn’t prise them away.”

Richard Neudegg, director of regulation at Uswitch.com, likewise said:  “By shortening the Energy Price Guarantee to six months, the government is adding back an unwelcome element of uncertainty to households on what will happen come April.

“If a limited pot of help is available, targeting support at those who need it most is a sensible approach. However, there aren’t many households who won’t be worrying about the cost of energy — and this announcement will reignite those concerns.

“The government must address the structural problems of the wholesale energy market as a matter of urgency, including ensuring that consumers benefit from the lower price of energy generated by renewables. Without it, we will continue in this vicious circle of uncertainty.”

Morgan Wild, head of policy at Citizens Advice, said: “The government’s decision to double back on previous promises to help people with energy costs means millions now face huge amounts of uncertainty.

“The cost-of-living crisis will extend far beyond April and people mustn’t be saddled with bills they cannot afford. Any changes the government makes must, as a minimum, prioritise households on low incomes and benefits – a group which is already at crisis point.

“The government needs to get support for energy bills right in the long term and, crucially, this must include helping people to make their homes more energy efficient.”

Madeleine Gabriel, director of sustainable future at Nesta, said any effort to help households with the cost of energy must be accompanied by an energy saving campaign, which has so far been the “missing plank” of the government’s plans.

“Many households will continue to need direct financial support while energy prices remain high, but by subsidising all homes’ bills for two years, the original Energy Price Guarantee looked like a risky blank cheque,” she added.

“While it considers how best to target future support, the government can help save itself money, and cut consumer bills, by helping households who can save energy to do so.”

The announcement received a warmer welcome from the Tony Blair Institute of Change, whose head of net zero, Daniel Newport, said the chancellor was right to review the policy and called for the price freeze to be replaced by a system of “cash rebates” that would “strengthen incentives on households to cut consumption where they can, while also allowing for improved targeting.”

The organisation said households on benefits should receive 100% of the difference between a minimum threshold and the price cap for a typical households, whilst others could receive a lower rebate, for example 75% of the difference. It said cash rebates would avoid giving larger subsidies to households just because they use more energy.

Recent analysis by the Resolution Foundation suggested the Energy Price Guarantee would provide the greatest benefits to those that are better off, with the richest 20% of households expected to gain an average around £1,300 this winter compared to £1,100 for the bottom fifth. It found 11% of households were set to receive more than £2,000, while another 13% were in line to receive less than £500.

The Tony Blair Institute said there is also a case for providing more support to households which have greater energy needs due to characteristics they cannot easily control, for example, offering additional payments to larger households or those with poor insulation based on receipt of child benefits and Energy Performance Certificates.

Newport cautioned, however, that the amount of savings that can be achieved through better targeting are limited: “It is far from a silver bullet while support for middle-income households remains a political necessity. Unless prices fall, government is likely to need to continue supporting all households.”

Darren Jones, Labour MP and chair of the Business, Energy and Industrial Strategy Committee, said:  “We’ve long called for the targeting of public funds to those who need it the most. Ministers should have been working on this months ago.

“Any end to support for all bill payers should be tapered off, instead of facing a cliff edge. Government must also bring forward a national home insulation programme urgently, to help everyone reduce their energy bills.

“We look forward to scrutinising any changes to the scheme in due course.”

Support for customers in the face of rising energy bills will be one of the key discussion points at Utility Week Forum on 8-9 November in London. Find out more here.