Government simply has to act

It feels like there’s been a long build-up to the price cap rise – indeed as an industry we were raising the alert as far back as last autumn that a steep price rise was likely in April. However, from 1 April millions of customers face the reality of a £700 increase (for a typical household) and its impact on their monthly payments or how far a top-up payment goes.

April can be a really difficult month for people – increased bills for things like council tax and water also kick in, which this year is compounded by increased National Insurance contributions and inflation rising inexorably to make other essentials of life more expensive. Talk of a cost of living crisis is certainly not media hyperbole and it’s an incredibly worrying time for many energy customers – some of whom will be unused to worrying about making ends meet.

The causes of the price rise have been well publicised and with the Russian invasion of Ukraine exacerbating what was already a highly volatile wholesale market and pushing the price of gas to new unprecedented heights, it seems sadly inevitable that further rises will follow later in the year.

Energy suppliers will continue to do all they can. They stepped up support for customers during the pandemic and those who have signed up to our Vulnerability Commitment have pledged – even in the face of an extremely challenging environment – to go further to improve services for those customers most in need. But there will be only so much they can do to respond to a price rise of this scale and sadly, they know there will be more demand for help than they can meet.

That’s why we have been consistently pushing the government for extra support, stressing that when bills go up by this much – and given the context of overall affordability challenges and the economic (and indeed health and social) consequences – they simply had to act.

The package of support announced by the Chancellor in February was very welcome, but given the level of concern about today’s rise, projections of the price cap reaching £3,000 in October are truly alarming – most of all for those customers who were already struggling in the first place.

The overriding concern amongst our members is about ensuring that they can support customers through this cost of living crisis. Suppliers are also likely to experience difficulties meeting the anticipated high demand for support and ensuring that they can respond to the understandable but unprecedented level of contact from concerned customers.

We’ve heard criticism over long call waiting times, and understand how frustrating this is for people. It is going to be difficult to meet expectations on customer service at a time of unprecedented stress and we are working with industry to ensure that our members are planning for this. It’s unfortunate but this isn’t an environment where suppliers can afford to take on lots of extra staff.

We’re also anticipating increasing levels of debt, and are talking to Citizens Advice and Ofgem to make sure people can get the help they need.  The last few months have seen suppliers losing up to hundreds of pounds a customer and nearly 30 others have gone out of business. The cost of these supplier failures could add a further £2.4 billion to customers’ bills.

The government must be prepared to step in with a wider rebate scheme or further economic intervention, as these options are unlikely to go far enough for many customers if the price cap does reach £3,000 this winter as anticipated.  There are also a number of other things that they could do to reduce the impact of high prices including moving policy costs into taxes, smoothing the cost of supplier failure over a much longer period of time and looking at the role of VAT on energy bills. It will also be important to consider options for support for non-domestic customers to avoid further, economy wide impacts.

As we work towards reducing the UK’s dependence on international gas in the medium term, it’s also an important time to recognise that the benefits of achieving net zero are also solutions to the current crisis – in particular increased energy security from domestic low carbon projects and enhancing our poor energy efficient building stock.

There is an opportunity for government to use this moment to radically accelerate net zero plans which will help our economy through investment and jobs. Our net zero targets are dependent on ensuring that the UK energy industry can attract investment in a modern, low carbon power market, a smart, flexible energy system and a robust, reformed retail energy market that can innovate and deliver great service to households and businesses.