Energy Reset: Where is the support package for bill shocks?

As part of our Energy Reset campaign, Utility Week has gauged the views of senior suppliers on the impact of next week’s price cap review and longer-term solutions to avoid turbulence in the retail market. In the first summary of their responses, James Wallin explores their frustrations that government has wasted the time afforded by the price cap and that support measures are still not in place.

Senior energy retailers have shared their concerns with Utility Week that next week’s price cap rise could still be announced without accompanying government support for billpayers.

Industry chiefs remain in discussions with the Department for Business, Energy & Industrial Strategy (BEIS) and Ofgem about ways to mitigate the impacts of an expected 51% increase in energy bills from April.

This week there have been several newspaper reports that Boris Johnson and Rishi Sunak are working on a package of measures to abate energy costs. The relative merits of some of these were explored in an analysis last month.

However, senior figures in the industry told Utility Week they are pessimistic about these materialising in time for Monday’s announcement from Ofgem about the next cap rise.

At an Energy Reset roundtable for energy retail leaders, one figure from an incumbent supplier said there was “a high risk” that the regulator would be left to announce a rise in the price of a default tariff to almost £2,000 with no associated support.

They added: “I have a concern that it may even be a deliberate approach to see how bad is it and how much have we got to do. When I hear the secretary of state talking about support coming in the Spring Statement, I think it’s a big risk. It needs to be packaged up now.”

Another added: “We saw this coming months ahead and I don’t think we’ve used the time well. As industry, government and regulators, we haven’t made the progress that was needed.”

The roundtable saw supplier after supplier underline the devastating impacts of an uncushioned price hike on the nation’s finances – and their fears that ministers have failed to appreciate the scale of the impact.

One summed it up: “We are getting calls now, from customers, from local newspapers with stories of people struggling to heat their homes. And this is from the relatively modest increases from October. April is going to be brutal.

“We have had the first shocks, but now the earthquakes are about to start. Then the aftershocks will be even stronger.”

One supplier expressed despair that BEIS was failing to grasp not just the impact on consumers but on the wider economy, pointing out that the estimated increase in energy bills equates to one or two percentage points on inflation. The domino effect on every index-linked component of the economy – Treasury gilts, rail fares, student loans, public sector pay – will soon be felt.

So, why has government prevaricated? The Covid-19 pandemic has set a precedent for government intervention to protect household finances but there is clear trepidation from the Treasury to commit to support that may be difficult to withdraw.

One CEO of an energy retailer interviewed separately by Utility Week said: “This is not a 2022 issue, it’s a 2020s issue. Price volatility is not going away anytime soon and the Treasury is terrified of locking itself in to something it can’t extricate itself from. So I see them ducking the long-term fixes and looking for a headline-friendly short-term giveaway. The problem is that doesn’t really fix anything and ultimately just costs us more.”

A politician taking part in the Energy Reset roundtable stressed that short and long-term solutions were not mutually exclusive.

They said: “The Chancellor has not got much room to manoeuvre but he’s going to have to do something here. It can only be short-term so it’s only going to be about reducing the pain for those most in need. It won’t solve the problem but it’s a start.

“That means they have to at the same time come up with some longer term answers. Without those, there is no hope. The only thing they can say is this is terrible in the short-term and here is our long-term solution.”

There were a mixture of views on how prepared consumers are for these shocks. Several retailers cited increased call volumes on the back of media coverage of the expected rise.

However, a leader of one of the country’s biggest suppliers stated bluntly: “I don’t think people get it yet. It will only hit home when the prices go up. And I think the majority of the UK workforce will be in fuel poverty come 1 April. We’re not being honest about that or taking steps to address it.”

If industry’s fears materialise and adequate support measures are not in place next week, the pressure must not be allowed to ease, senior figures told Utility Week.

One said: “If you look at current forward prices, the suggestion is the price cap is going to go up again in October. If we have focused on the wrong issues over the past six months, how can we make sure we don’t make that same mistake again?”