Utility Week

12 | FEBRUARY 2022 | UTILITY WEEK Regulation Analysis Cost of living crisis must be solved – but at what price? The government is under extreme pressure to fi nd ways to mitigate the pain for consumers of the next energy price cap rise. David Blackman looks at some of the options under consideration I n 2013, when Ed Miliband shocked the Labour party conference with his pledge to freeze energy bills, the average cus- tomer's annual combined electricity and gas costs added up to around £1,300. Such - gures, which caused so much political consternation nearly a decade ago, look small beer now in the context of predic- tions that the next review of the energy price cap will see it rise to approximately £1,900 fromƒApril. It seems unlikely the pain will end there, with October's increase expected to take it over the £2,000 threshold. Forecasters increasingly expect that soaring wholesale gas prices, the key driver of the recent surge, won't fall soon, spelling elevated energy bills for the next couple of years. "It [energy] was always going to come back to aŠ ordability at some point, it just happened sooner than expected," says Josh Buckland, special adviser to ex-business sec- retary Greg Clark. "With rising in• ation more generally in the economy, this becomes a really signi- cant ongoing issue, which ratch- ets up pressure over the long term." "This is fast going from an energy crisis to an economic crisis," says Simon Markall, deputy director of external relations at Energy UK, pointing out that April's price cap hike could add up to 2% to the headline in• ation rate. The timing of the cap increase will be politically awkward for the Conservatives, coming - ve weeks ahead of May's local elections, which already look tricky for the government following the revelations sur- rounding Downing Street lockdown parties. "A 50% upliœ in energy bills in April would mean that the local elections are devastating for the Tories so there's no way they won't do anything," says Adam Bell, former head of energy strategy at the Depart- ment for Business, Energy and Industrial Strategyƒ(BEIS). Markall agrees: "The government is going to have to provide some support to customers." Mike Foster, chief executive o¢ cer of the Energy and Utilities Alliance, says: "It is pretty clear what levers that government has at its disposal. It's just a matter of how much they want to spend." As Utility Week went press, suppliers and government remained locked in talks over ways to mitigate the pain of the next price cap rise for consumers. Here we examine the options on the table and their relative merits. Warm Homes Discount The solution most frequently name-checked by ministers is the Warm Home Discount, the supplier-funded scheme that oŠ ers a rebate to bene- t recipients and is worth £140 per annum (not per week as prime minister Boris Johnson erroneously told the House of Commons repeatedly in one encounter inƒJanuary). "This [option] is driven by the acknowl- edgement that the scale of cost increase is so signi- cant, you risk a real distributional problem if you don't do something for peo- ple in fuel poverty," says Buckland, who is now a director at public aŠ airs company FlintƒGlobal. A big plus point from the government's perspective is that the scheme is the source of potential support best targeted at those most exposed to increased bills. It is also up and running already, meaning it can be extended without any fresh legislation. Pre-pandemic, the government had said it was already committed to both increasing the rebate to £160, while extending the num- ber of households receiving it. "The worry is that they will just do what they said in the white paper," says Markall. Pointing out that the rebate has been held at £140 for ten years, Foster argues that the Treasury could "double it comfortably". The Resolution Foundation thinktank has proposed such an increase, raising the annual discount payment to £300. The foun- dation also argues that the discount should be extended automatically to all households receiving in-work and pension credits, nearly quadrupling the total to 8.5 million. Both the increased headline rate and wid- ened eligibility should be paid for out of gen- eral taxation, the thinktank recommends, which would cost the Exchequer around £2.5ƒbillion. Cost smoothing The industry has been lobbying ministers to introduce a government-backed loan scheme "Energy was always going to come back to aff ordability at some point, it just happened sooner than expected." Josh Buckland, director, Flint Global "Energy was always going to come back to aff ordability at some point, it just happened sooner than expected." Josh Buckland director, Flint Global Storm clouds gathering: a cost of living crisis is looming but who will pay to alleviate it?

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