Yesterday (26 May), Chancellor Rishi Sunak announced new support for consumers amid the continuing cost of living crisis.
This included doubling the energy bills discount – first announced in February when the price cap was increased by 54% – to £400, and it will no longer have to be repaid. The support has been broadly welcomed by the energy sector, following months of cautions and calls for action from those within it.
“We’re very pleased that the Government has responded to calls from our sector, and consumer groups, by announcing significant extra support to help energy customers, especially those in the most vulnerable situations,” said Energy UK’s director of advocacy, Dhara Vyas.
“The Chancellor deserves credit for listening and putting in place increased support for households. It won’t be easy for customers who will still be facing high energy bills, but this should help ease the difficulties for millions of households.
“It's important that the Government also considers the energy costs facing businesses, who are also struggling with rising prices. It was also a missed opportunity to improve household energy efficiency as the best way to reduce bills permanently for customers.”
She continued to highlight the introduction of the Energy Security Strategy and its emphasis on reducing our dependency on fossil fuels by expanding domestic clean energy sources.
Support for renewables within the strategy was welcomed at the time it was released, although the lack of near-term support and energy efficiency measures left many viewing it as a “missed opportunity”.
Amongst those who have welcomed the latest round of support has been suppliers, who have been warning of increasing numbers of customers struggling to pay their bills.
“The huge increase in energy prices we’ve seen as a result of the fossil fuel crisis is unmanageable for many. So we are glad that the government is boosting its energy bill support to reduce the impact on consumers,” said Greg Jackson, CEO and founder of Octopus Energy.
"We’ll work relentlessly with other energy companies, the government and the regulator to do all we can to help customers through this.”
Sunak’s new support measures follow Ofgem CEO Jonathan Brearley telling MPs on Tuesday 24 May, that the Default Tariff Price Cap could surge again to £2,800 in October amid the continued market volatility.
Research from charity Resolution Foundation has suggested that 6.3 million households could face fuel stress due to the cap increase in April, with predictions that it will rise still further causing considerable concern.
"This is a very significant package from the Government and we entirely support it,” said Stephen Fitzpatrick, founder of OVO of the newest support measures.
“No scheme is perfect but this intervention will support millions of British families that need help the most. With the Treasury providing this financial support to customers, it is now up to OVO and other energy companies to work together with the Government and Ofgem to ensure that customers get the help they need to stay warm this winter.”
The windfall tax: ‘an inevitable’ move
The new support is to be funded through Energy Profits Levy, a 25% windfall tax on oil and gas companies in the UK, which is expected to raise around £5 billion in its first 12 months.
Michael Grubb, professor of Energy and Climate Change and deputy director at the UCL Institute for Sustainable Resources, said: “After resisting for months, a windfall tax was becoming inevitable. The first focus will be on the government plans for redistributing the revenue. But a second question is now also unavoidable. What will the government do with the UK energy system?
“Our electricity market means that consumers pay doubly for the high cost of gas – once through heating, and again through the impact of gas on electricity prices, even though renewable energy is now far cheaper. It is the system itself that needs bold measures: to invest in energy efficiency, remove removal of obstacles to the cheapest and quickest renewables available, and reform how the market works.”
The dramatic jump in the profits of oil and gas companies amid the continued energy crisis led to calls from the Labour Party amongst others for a windfall tax. The party welcomed the introduction of the Energy Profits Levy, although it criticised the Conservative Party for not bringing it in sooner.
This is vital to help with the cost of living, and also tells a bigger a story about the need for change in our country.— Ed Miliband (@Ed_Miliband) May 26, 2022
Do you side with the vested interests or do you side with the British people? There will be many more of these arguments in the months ahead.
There was some concern that the windfall tax would include generators, such as offshore wind farms which have also seen their profits increase. However, many of these were developed under the Contracts for Difference scheme, and as such have already begun paying back excess profits to consumers.
“We would caution against any action, such as a windfall tax on generators, that could jeopardise these aims and the investment required,” added Energy UK’s Vyas.
“These companies have led the way in creating a cleaner power system, investing billions of pounds in the UK and creating jobs and economic benefits across the country.”
Energy efficiency still missing from support
Whilst the increased near-term support has been welcomed, the continued omission of energy efficiency support in the government’s approach to the cost of living crisis drew criticism.
Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit said: “One-off payments to the most vulnerable will help to ease some worries about energy bills this winter. But the glaring omission from the Chancellor was a lack of a plan for home insulation, and with Ministers admitting that Treasury is blocking investment into energy efficiency, what will happen with household bills next year, beyond a stop-gap windfall tax?
“Temporary solutions are a sticking plaster and all estimates show gas prices will be high for years to come, so investing in insulating our leaky roofs and walls makes the best long-term use of taxpayers money. Reforming the energy market to detach expensive gas from wholesale electricity price is a logical, necessary step that will drive down bills, especially given how much cheaper wind and solar generation is today.”
Other potential longer-term changes to the energy system to avoid such a crisis again have also included calls for a social tariff.
“Millions will still be struggling and the energy crisis is far from over, but a large, more targeted intervention is what was needed ahead of winter,” National Energy Action chief executive Adam Scorer said.
“The Government urgently needs to plan for energy prices to remain high for the longer term. This must include a social tariff, setting an affordable price of energy for the poorest households. And there must be additional effort into making the homes of fuel poor households more energy efficient, making them more resilient to the sort of price shock that they are currently shouldering.”