Yesterday (3 January), Ofgem announced a 54% increase in the price cap for the summer period, due to the ongoing energy crisis.
In response, chancellor Rishi Sunak set out a number of measures in an effort to manage the impact this will have on consumers. This includes a £9.1 billion one-off repayable discount, a council tax rebate and a discretionary fund.
“Today we recognise the real and growing concerns people have about the cost of living – and once again we are taking action,” said Prime minister Boris Johnson.
“We are delivering a new package of targeted support to help with the financial pressures felt by families right across the country, with additional help for those most in need.”
While acting to manage the increase to bills has been welcomed, the steps have been criticised by a number of groups. One of the key critiques is that the £200 discount 28 million homes are set to receive on their energy bills will not come into effect till October, when the next price period begins.
“We very much welcome the support for customers announced by the Chancellor today, but with no sign of wholesale prices falling and bills likely to remain high through the autumn, our concern for millions of customers, as well as the stability of the retail sector, remains,” said Energy UK’s chief executive, Emma Pinchbeck.
According to predictions for Cornwall Insight, the next price cap period will see a further increase to more than £2,300 per year. So while the loan may help customers manage that, it will not relieve the strain of the summer price period, which comes into effect in April.
Additionally, both the Labour Party and the Green Party have criticised that the discount, dubbed by the government as the ‘Energy Bills Rebate’, will need to be repaid, taken in £40 instalments from 2023.
“Instead of a simple and effective payment to everybody as we suggested, he has put forward a buy-now pay-later scheme which will create an additional burden for those on the lowest incomes further down the line,” said councillor Zoe Nicholson, leader of Lewes District Council and Green Party Green New Deal spokesperson.
This echoed Shadow Chancellor Rachel Reeves’ criticism of the measures, which she argued gambled on the assumption that energy prices will fall. Given that the loan will be repaid by customers from 2023, it works on the assumption that prices will be less volatile by then, however recent research from Cornwall Insight suggested this volatility will continue till at least 2030.
“High global gas prices are expected for another few years at least. The Chancellor’s proposal, while giving some short-term relief, provides little more than a sticking plaster on the open wound left by the UK’s gas dependency,” said Sepi Golzari-Munro, Deputy Director at the Energy and Climate Intelligence Unit (ECIU).
“With many predicting high gas prices for years to come and the price cap rising again in October, the importance to vulnerable households of insulation schemes such as ECO, which is due for a boost in April, cannot be exaggerated. The question now is, will it be enough?”
Lack of long-term commitment
One of the most heavily criticised aspects of the governments response to the energy crisis, is the lack of a long-term strategy. In order to manage the volatility of the energy market for customers going forwards, greater energy efficiency measures are needed.
“We know some customers will struggle to pay their energy bills even after this support package and the worry is we face the same set of circumstances when the price cap is revisited in the autumn. To combat this, the government needs to go further and faster right now to make sure customers can live in warm homes not just now but over the next winter as well,” said E.ON UK chief executive Michael Lewis.
“To do that we need to turbo charge our drive towards zero carbon energy – which means getting ourselves off gas and free of international energy markets – it also means permanently removing environmental levies from electricity bills to support low carbon heating alternatives to gas and rapidly improving energy efficiency around the country which will massively reduce bills for years to come.”
The UK has the leakiest housing stock in Europe, meaning more energy is often needed to keep homes warms in the first place. There have been growing calls in the country to rollout insulation and other energy efficiency measures to protect the poorest and most vulnerable, a call particularly amplified by the actions of activists Insulate Britain.
It follows the government’s Green Homes Grant scheme – which offered grants for measures including insulation, heat pumps and solar thermal – shuttering after just a few months amidst criticism it was riddled with administrative problems, with the Environmental Audit Committee branding the government’s domestic decarbonisation support as being “woefully inadequate”.
Beyond the necessary improvements to homes, a shift from fossil-fuels to renewables would lower energy bills and increase energy security, leaving Britain less at risk of the whims of a global market.
“The measures set out by the Chancellor to provide support for hard-pressed families struggling to cope with the eye-watering hike in international gas prices are very welcome, but the UK needs to phase out fossil fuels as fast as possible to provide long-term energy security and certainty for consumers,” said RenewableUK’s chief executive Dan McGrail.
“Figures published today by Ofgem show that green levies are falling, so anyone attempting to blame renewables and net zero is seriously misinformed. Let’s be clear – this is a crisis caused by the soaring cost of gas.”
He continued to highlight that during the last three months of 2021, wind and solar power projects actually paid back nearly £160 million to consumers due to the high power prices.
“The escape route from volatile and uncontrollable gas prices couldn’t be clearer – investing in our green future secures low-cost reliable power as well as getting the UK to net zero as fast as possible,” McGrail finished.