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UK energy bills to go up by 80% in October as regulator announces hike

LONDON Britain’s energy regulator announced Friday it’ll raise its main cap on consumer energy bills to the average 3,549 from 1,971 per year, as campaign groups, think tanks and politicians ask the federal government to tackle a cost-of-living- crisis.

The purchase price cap limits the typical charge energy suppliers can bill domestic customers for his or her combined electricity and gas bill in England, Scotland and Wales, but is recalculated by Ofgem over summer and winter to reflect wholesale market prices along with other industry costs.

It covers around 24 million households. The 4.5 million households on prepayment plans face a rise from 2,017 to 3,608.

The cap will not apply in Northern Ireland, where suppliers can increase prices at any point after getting approval from the different regulator.

Gas prices have soared to record levels during the last year as higher global demand has been intensified in Europe by low gas storage levels and a drop in pipeline imports from Russia after its invasion of Ukraine. It has also increased electricity prices.

Earlier this month, Ofgem announced that it’ll recalculate the cap every 90 days instead of every half a year to reflect market volatility.

Consultancy Cornwall Insight forecasts the cap could rise to 4,649.72 in the initial quarter of 2023 also to 5,341.08 in the next quarter before decreasing slightly to 4,767.97 in the 3rd quarter.

That’s still up from the average 1,400 annual bill in October 2021, and the existing 1,971 cap.

‘A catastrophe’

In July, the federal government announced it could pay a 400 grant to all or any households over half a year from October to greatly help with bills, having an additional 650 one-off payment likely to 8 million vulnerable households. Some suppliers also have announced support packages for customers.

However, it has been widely criticized for failing woefully to address the scale of the issue, which includes been compared with the Covid-19 pandemic and the 2008 financial crash with regards to its effect on the populace.

“A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial harm to families across Britain,” said Jonny Marshall, senior economist at the Resolution Foundation think tank, prior to the announcement.

“We have been on course for thousands to see their energy take off entirely, while millions will undoubtedly be unable to settle payments and build-up unmanageable arrears.”

Additionally, there are concerns on the influence on U.K. businesses, that are not protected by the cap and could face popular from the erosion in consumer spending power.

Leadership election

Several approaches for tackling the crisis have already been submit by politicians, consultancies and suppliers themselves, however the ongoing U.K. leadership election has meant no new policy announcements have already been made regardless of the looming spike in bills.

The candidates, Liz Truss and Rishi Sunak, have both spoken of the necessity to provide additional support for households and businesses but said no decision will undoubtedly be made before new prime minister is elected on Sept. 5.

At a leadership hustings Thursday night, Sunak said he’d provide further “direct financial support” for vulnerable groups.

Truss, the existing favorite to win the contest, repeated previous comments about attempting to use tax cuts to lessen pressure on households, reversing the recent upsurge in national insurance tax and suspending the green energy levy on bills.

Plan needed

Options up for grabs are thought to add freezing the purchase price cap at its current lower level which energy suppliers argue would have to be financed by way of a government-overseen funding package to be able to prevent destabilization of the or allowing the purchase price cap to go up and extending household support.

Consumer group Which? on Thursday said the federal government had a need to extend household payments from 400 to at least one 1,000, having an additional one-off minimum payment of 150 to the cheapest income households, to avoid millions falling into financial distress.

The opposition Labour Party has said it could freeze the April to October cap through winter by extending the recently-introduced windfall tax on coal and oil companies, scrapping the universal 400 payout and finding other savings to freeze the cap over winter.

Scotland’s first minister Nicola Sturgeon tweeted: “This rise should be cancelled, with the united kingdom gov and energy companies then agreeing a package to invest in the price of a freeze over a longer time, in conjunction with fundamental reform of the power market.”

The Department for Business, Energy and Industrial Strategy commented: “In addition to existing government support, the civil service is making appropriate preparations in order that any new support or commitments on cost of living once the new Prime Minister is set up could be delivered as fast as possible.”

Massive impact

Jonathan Brearley, leader of Ofgem, said any response had a need to “match the scale of the crisis we’ve before us” and involve the regulator, government, industry, NGOs and consumers working together.

“We realize the massive impact this price cap increase could have on households across Britain and the difficult decisions consumers will will have to create,” Brearley said.

“THE FEDERAL GOVERNMENT support package is delivering help at this time, but it’s clear the brand new prime minister will have to act further to tackle the impact of the purchase price rises which are to arrive October and then year.

“We have been dealing with ministers, consumer groups and industry on a couple of choices for the incoming prime minister that may require urgent action.”

“The brand new prime minister will have to think the unthinkable with regards to the policies had a need to get sufficient support to where it’s needed most,” said the Resolution Foundation’s Marshall.

“A forward thinking social tariff could provide broader targeted support but involves huge delivery challenges, while freezing the purchase price cap gives an excessive amount of away to those least in need. This issue could possibly be overcome with a solidary tax on high earners an unthinkable policy in the context of the leadership debates, but a practical treatment for the truth facing families this winter.”

Cost of shopping for gas

Emma Pinchbeck, leader of trade association for the power industry Energy UK, told the BBC Friday morning that the would continue steadily to demand government intervention to greatly help both consumers and the effect on the wider economy.

“Most [suppliers] create a negative margin and also have going back couple of years, it’s among the reasons we’ve lost 29 suppliers from the marketplace. When you understand this and the scale of the crisis, we’re discussing something much larger compared to the industry can meet, regardless of the help which has been set up, despite charging the utmost they are able to for the expense of buying gas.”

Pinchbeck said the favored a deficit tariff scheme that could allow suppliers to help keep prices at their current level and also have their costs met by way of a loan since it was the quickest to implement.

Wider challenge

Marco Alver, leader of renewable energy firm TES-H2, told CNBC’s “Squawk Box Europe” that higher gas prices were a pan-European problem since gas moves freely between countries round the continent.

“Unless folks are thinking about closing the borders of gas, that i haven’t heard anyone say, we ought to really think concerning this as a European gas crisis that may only be met with European solutions. With price caps, with other measures which are being asked, which now have to be urgently implemented,” Alver said.

“We have to work now prior to the winter occurs solidarity mechanisms, because we can not have consumers and households freeze in a single country and factories open internationally. We should agree as quickly as possible that households and retail consumers come first.”

Facing soaring wholesale prices, European governments have already been discovering their very own support packages for citizens.

France has fully nationalized energy supplier EDF at around cost of 9.7 billion euros, and capped increases in electricity tariffs at 4%.

German households are set to cover around 500 euros ($509) more on the annual gas bills until April 2024 by way of a levy to greatly help utilities cover the price of replacing lost Russian supplies, with electricity prices also set to improve. The federal government is discussing a sales tax exemption on the levy and a relief package for poorer households, but in addition has been criticized for failing woefully to announce adequate support.

Italy and Spain have both used windfall taxes to invest in a variety of handouts for households in need and limits on bills rising to unaffordable levels.

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