Business Secretary
Kwasi Kwarteng will chair a virtual meeting with the energy industry later on
Wednesday to consider alternatives to tackle what energy providers and others
are describing as a national crisis.
There are
three fronts to this crisis: household consumers, business customers, and the
energy companies themselves.
The
government has made clear its number one priority is domestic consumers,
although that is arguably the least urgent of the three.
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Most
consumers are protected by the continued existence of the energy price cap. It
may have bankrupted two dozen providers, forced to buy wholesale gas at higher
prices than they are allowed to sell it, but it means that millions of bills
are capped at £1,277 for normal domestic usage many business listings.
That current
level will remain in place until 1 April, but the new cap level will be
announced in early February.
This is the
deadline that government officials are working to when trying to figure out how
to protect consumers, who will struggle to pay their bills when the cap rises
by an estimated 50% or more.
What are the
options?
The options
include abolishing VAT of 5% on energy bills. This would be quick and easy but
is considered a blunt instrument, as it would provide support to well-off
customers who don't need it. For those that do need it, 5% of a possible £700
price rise is pretty small.
The
government could temporarily suspend the additional levies on bills that fund
green policies. That would be a tricky sell in some quarters after the UK
hosted a major global climate summit, and these levies are designed to reduce
dependence on volatile fossil fuels. This option is, however, gaining support
among some Conservative backbench MPs.
One other
option is to extend and expand the Warm Homes Discount. Currently, customers in
receipt of certain benefits can apply for a one-off payment of £140 business listings.
That could
be increased. When quizzed on Tuesday on what the government was considering,
the prime minister reached for his energy briefing crib sheet and this was on
the list.
Another
option - suggested by the industry - would be to subsidize the energy companies
themselves, by establishing a fund or facility which would allow them to draw
down government cash when wholesale prices were very high and then pay it back
when prices dipped again.
This would
smooth out price spikes and would have the added benefit, energy providers
argue, of preventing further providers from going bust.
Even those
that have survived so far have warned that their ability to insure themselves
by buying the gas they need in advance is beginning to unravel, as higher
prices are outlasting their advance orders and exhausting their day-to-day cash
free business listings.
Officials
seem cool on this idea at the moment. Any such fund would need Treasury
approval and no concrete proposal has yet made it to the chancellor's desk.
What could happen next?
Potentially,
the most urgent problem is the needs of businesses that use a lot of energy and
are not protected by any cap.
There were
dread warnings from those firms before Christmas that many would imminently go
bust, but government sources point out that so far, Armageddon has not
materialized.
Government
officials also point to the extreme volatility of wholesale prices. On
Christmas Eve, prices hit 450p a u nit - nine times the level last year. On
Tuesday they were back to 150p.
It is hard
and expensive to design a mechanism to accommodate wild swings which are
affecting energy markets and their customers everywhere - not just in the UK.
Expectations
of any breakthrough on Wednesday have been played down by people close to Mr
Kwarteng.
More on this
story
·
What
can I do if my energy supplier goes bust?
·
Zog
Energy becomes the latest supplier to collapse
·
Related
Topics
·
Energy
industry
·
UK
economy
·
Energy
service companies
·
Kwasi
Kwarteng
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