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Ministers are stepping in to stem the soaring price of energy

Ministers are stepping in to stem the soaring price of energy

The UK government is set to announce measures to tackle the rising cost of energy bills. The crisis, precipitated by the depletion of natural gas reserves across Europe, is already a serious threat to low-income households up and down the country. Ministers have concluded that “something needs to be done” ahead of rises tipped for 1 April.

In early February industry watchdog, Ofgem will announce the adjusted energy price cap, which will be in place from April to September. This is expected to increase to around £600 a year, from £1,277 to annual bills in excess of £1,877. This will affect 15 million households, with just two months’ notice ahead of the rise.

What action is being taken?

However, they have yet to define what form these measures will take. Although an official announcement is expected imminently, the Treasury is still deliberating over how much money will be set aside, as they remain reluctant to spend large amounts on an ongoing basis in the wake of the pandemic. There are fears that one-off assistance could lead to demands for more help until prices fall, which could take months or years.

Ministers are considering the options, but reports suggest that many of these solutions are likely to hit middle-class households hard. The prime minister has already said that he doesn’t favour assistance for those deemed to be able to afford the price rise. Furthermore, he also stated that a VAT cut on energy prices isn’t an option.

What the experts suggest

Experts have mooted various roads that the government could take to address the issue. One option would be to suspend levies that fund green policies, which of course, would be a tough thing to sell to conscious factions of the voter base – especially after the UK hosted COP26. Another approach could be to expand the Warm Homes Discount. Right now, customers in receipt of certain benefits can get a one-off payment of £140, which could be increased.

Another approach – backed by industry insiders – would be to subsidise the energy providers themselves. It has been suggested that the government establish a fund or facility that would allow them to draw down public funds when wholesale prices rise and pay it back when they dip again. According to analysts, this would smooth price spikes and prevent further companies from going bust.

An uncertain future for the energy industry

This but skims the surface of a complex issue that needs to be addressed. It’s not only households that are affected, but businesses too. Companies that use a lot of energy aren’t protected by the cap and they could seriously suffer in the event of another rise. It’s difficult and costly to create a mechanism to accommodate big swings in wholesale prices, but it’s clear something has to be done to protect customers all over Europe. It will certainly be interesting to see how events unfold in the coming weeks.

 

 

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