The government is desperate to avoid a repeat of the 2022 universal energy support that ended up costing £40billion
Labour was hoping the inevitable turbulence heading into the May elections would be calmed, at least somewhat, by news of falling inflation, interest rate cuts and April’s energy price cut.
That was before Donald Trump decided to wage war on Iran. The US President hasn’t just pulled the rug from under Labour’s plans, he’s trampled all over them. The Middle East war is set to trigger a fresh inflationary spike, and possible rate hikes. And while Ofgem’s energy price cap is falling next month, all bets are off on the possible size of a July increase.
Industry experts Cornwall Insight has forecast average bills could surge by £332 a year to £1,973. Which is why the government is frantically considering what can be done soften the blow, if the conflict drags on.
The one thing Chancellor Rachel Reeves and those at the Treasury are desperate to avoid is a repeat of the universal support in the wake of Russia’s full-scale invasion of Ukraine in 2022 and the ensuring energy crisis, which ended up costing £40billion. All talk now is of a targeted help. But how could that work in practice?
Groups including National Energy Action and the End Fuel Poverty Coalition say a starting point could be the six million on means tested benefits who get the Warm Home Discount and the existing £150 off their electricity bill.
Take Cornwall Insight’s forecast £332 increase and the cost of shielding all six million from the rise would be £2billion alone. But as Matt Copeland, NEA’s head of policy and public affairs points out, a third of those classed as fuel poor don’t receive means tested benefits.
One way of extending the safety net could be to include those who get, for instance, carer’s allowance and disability living allowance, which aren’t means-tested.
Another option, in addition, could be to look at the truly colossal scale of Britain’s energy debt mountain. It already stands at roughly £5.5billion, and has grown rapidly as households have battled with sky high energy bills despite the last lot of support and the price cap. And even if you’re not in debt yourself, you still pay for the cost of it through £50 added to everyone’s bill via the price cap mechanism.
The government could foot the whole cost by wiping the slate clear, but that looks very unlikely given the expense. It also risks rewarding the ‘won’t pays’ among those in arrears, as opposed to the ‘can’t pays’.
Alternatively, the government could reduce the burden on those who are already on debt repayment plans with their supplier, so are trying to get back in the black. Landing them with another bill hike in the summer just means they’ll be swamped again.
There has also been talk of a social tariff, with various different ideas banded about. The least likely seems to be where those who can afford to are hit with higher bills, to fund discount for the hard-up.
Ultimately, any option is going to prove costly for a government that was already treading a fine line when it came to the national finances.
The other hope is that, as has happened before with Trump, a ‘deal’s is cobbled together that prevents the sort of economic Armageddon some have predicted.
And while an energy price spike in the summer isn’t great, it’s when most people have their heating off so lower bills. The real fear is what could happen to Ofgem’s price cap in October, when temperatures start to plunge, but that is still seven months away. With so much damage already done, the government is hoping for the least worst option.
