The Conservatives risk being seen “as constantly behind the game” on tackling the cost of living crisis unless they counter Labour’s price cap freeze plan, a former energy retail CEO and fuel poverty expert has warned.
Paul Massara, former Npower boss and member of the Committee on Fuel Poverty, told Utility Week the government has no choice but to act before the next price cap increase in October.
However, he stressed that he disagrees with Labour leader Kier Starmer’s approach of freezing the price cap across the board and instead called for a social tariff to be implemented from October.
After being trailed in national newspapers over the weekend, Starmer today officially called for the next cap increase to be cancelled, as part of £29 billion support package. The announcement followed separate proposals from retailers themselves to freeze customers’ bills for the next two years. The scheme, which has the support of Scottish Power and Eon, would see the creation of a “deficit fund”, underpinned by a government guarantee, that could borrow from commercial banks to bridge the gap between the frozen cap and the wholesale power price.
Speaking to Utility Week, Massara said the current administration and the contenders for the Conservative leadership now had no choice but to announce their own plans to tackle a potential winter fuel crisis.
He said: “Kier Starmer’s intervention does put pressure on the Conservatives to set out a plan of action because otherwise they risk being constantly behind the game.
“This subject is dominating the debate and when you are talking about a price cap going up to the level of maybe £4,000, the government simply has to do something. This is beyond anything the existing support packages were designed to cope with. They need a new plan and I don’t see how they can now avoid addressing that.”
Labour’s proposals would see the cap frozen at its current level of £1,971 per annum, funded via a combination of a toughened-up windfall tax on oil and gas producers, scrapping the government’s recently announced £400 energy bills discount and reduced interest payments on government debt.
The party’s plans to find £7 billion of savings from lower inflation was backed up by new research, from the left-leaning Institute of Public Policy and Research (IPPR), which said limiting energy price rises can help prevent inflation from becoming “embedded” in the economy.
The think tank estimated that holding the energy price cap at its current level could reduce inflation this year by 3.9 percentage points, meaning a peak of 9.2% instead of the 13% maximum the Bank of England has forecast by the end of the year.
The IPPR report suggested a one-year price cap freeze could be used to put in place a social-tariff for customers on the lowest incomes and to accelerate clean energy and home retrofit programmes.
However, Massara said Labour’s vision was “too broad and too expensive”, and insisted there was no reason to delay implementing a social tariff, which could be funded by an extended windfall tax.
He said: “A social tariff focussed on people on universal credit or Warm Home Discount would be a targeted and proportionate response.”
In Massara’s view, this would see eligible customers staying at the current price cap level with the regulated cap remaining in place for everyone else. He suggested there could also be some mitigating actions for those not covered by the social tariff, such as a cut in VAT on energy bills.
He added: “The energy retailers can do this pretty quickly because they’ve done it before. They can identify which of their customers receive Warm Home Discount or are on Universal Credit and they can offer them the tariff from October.
“It’s a very clear solution, it just needs the political will to allow it to happen.”
Meanwhile, energy minister Greg Hands described Labour’s plan as a “magical solution” that attempts to “wish away” the realities of rising energy prices and would lead to the collapse of more suppliers.
Labour’s intervention follows a warning on Sunday by 70 charities that help with energy bills for low-income families must be doubled in order to avert a “catastrophe”.
To read more views on the implementation of a social tariff, see Utility Week’s recent analysis.