UK to soften new energy price surge for inflation-hit households

Britain will outline a multi-billion-pound plan on Thursday to help households cope with soaring energy bills, shortly after the regulator announces an expected 50% jump in the price cap.

British householders are facing a cost of living crisis this year, with the leap in energy bills set to come into force in April, the same month that taxes rise and general inflation is forecast to peak at 6%.

The Bank of England is also expected to say it is raising interest rates again at 1200 GMT on Thursday.

With energy regulator Ofgem set to announce the new six-month price cap at 1100 GMT, affecting 22 million households, finance minister Rishi Sunak will set out a plan to help households spread the pain over a longer period.

The Times newspaper has reported that the government will provide state-backed loans to energy firms so they can lower bills for now, and recoup the costs when energy prices fall.

Analysts have warned that move looks risky as they currently see the price cap rising further at its next review in October, following a 330% rise in benchmark European gas prices last year.

Tony Danker, director-general of the blue-chip business group the CBI, said government action was “good news” but he worried about the long-term trajectory for the economy, and whether consumers could earn enough to pay for energy.

Charity National Energy Action has warned that higher energy prices will likely push a further 1.5 million households into fuel poverty, meaning they are unable to afford to heat their homes to the temperature needed to keep warm and healthy.

“My question is really whether or not the economy is going to grow fast enough after this year for everybody to have the wage growth they need to cope with higher bills,” Danker told Sky News.

“Let’s see the detail. But I think this is a much more profound problem: how is Britain going to grow its economy and grow wages. The government’s in a tough spot.”

PRICE SPIKE

Governments across Europe have spent tens of billions of euros trying to shield consumers from record high energy prices, either removing taxes or supporting the most needy, after gas and power prices spiked when economies reopened from COVID lockdowns.

In Britain, a six-month price cap has limited the immediate impact on consumers, forcing the pain on to suppliers instead, with more than 25 going out of business since the start of 2021. Many had not hedged against future cost hikes.

Consultancy Cornwall Insight said it expected the regulator to now lift the consumer cap on the cost of gas and electricity by 49% to 1,897 pounds ($2,572) per year for a typical household, up from a previous record high of 1,277 pounds.

According to media reports, Sunak’s support will allow energy companies to remove 200 pounds from those bills and reclaim them at a later date. The government has previously ruled out cutting VAT on bills, describing it as a blunt tool.

The cost of that support will add to Sunak’s rescue package for the economy during the coronavirus pandemic, which prevented mass unemployment. It could cost as much as 410 billion pounds.