Following Liz Truss’ speech to the House of Commons this morning announcing support for consumers and businesses facing further eye-watering hikes in energy bills this winter, experts have been sharing their responses to the Government’s plans with IFA Magazine as follows:
Justina Miltienyte, head of policy at Uswitch.com, comments: “After endless reports of ever-increasing price predictions, consumers will be breathing a sigh of relief. Finally there’s a plan that removes the uncertainty of quarterly price increases and goes some way towards giving people the reassurances they need to get through the winter.
“But amid the solace, it’s important to remember that we are not out of the woods yet. Even if rates are not as high as they were going to be, households will still be facing an extremely difficult winter.
“Taking into account the £400 energy bill support, households could pay on average £237 more for energy over the three coldest months than they did last year – on top of hikes across other essentials such as food and fuel.
“It’s important to remember that bills are not frozen. This is a cap on the unit rate of the energy you use – it is not a cap on your final bill. The less energy you use, the less you will pay, so you may still be able to save money by managing your energy usage this winter.
“This help, while much-needed, is unaffordable to sustain. The longer we have to rely on Government support to keep prices down, the higher the final bill will be for taxpayers for years, if not decades, to come.
“With the pressure lifted for this winter, we welcome the announcement of an energy supply task force that must now sort out the structural problems of the wholesale energy market and how it interacts with the blunt price cap mechanism.
“Reforming the wholesale market goes hand-in-hand with reducing our dependence on non-renewable energy. Electricity prices can no longer be dictated by fossil fuels, especially gas, and it’s good to see a commitment to more quickly let customers benefit from the lower prices generated by renewables.
“Removing gas dependency would also protect households from a repeat of the most aggressive price shocks.
“The Government has made a start towards tackling the energy crisis, but now needs to work out how to make sure this never happens again.”
Note 1. Extrapolating current gas and electricity unit rates and standings with those provided for original October price cap, a £2,500 price cap freeze yields: a 9.8p/kWh gas unit rate; 28p/day gas standing charge; 36p/kWh electricity unit rate; 46p/day electricity standing charge. Applying these to Ofgem’s usage profile expected over December, January and February suggests a medium-use household will pay £820.49 for their energy this year, compared with £382.78 last year. Dividing the £400 energy bill support over six months equates to £66.67 per month. Reducing £820.49 by 3 x £66.67 = £620.48. £620.48 – £382.78 = £237.70 increase compared to last year
Steven Cameron, Pensions Director at Aegon comments: “The two-year cap on energy costs not only provides much needed support for households, otherwise facing a bleak winter of escalating bills, but it will also help to dampen the headline inflation rate. Many state-related benefits are uprated by inflation, so this support should help to manage the affordability of government funding in the long-run.
“Those receiving state benefits, such as state pensioners, can be particularly vulnerable to sky-rocketing inflation. These benefits are uprated each April based on the previous September’s inflation figure, published in October. Given the timings, capping energy bills from October won’t impact the upcoming benefit increase, which could see the state pension receive a record double digit increase under the ‘triple lock’. But some were predicting that without the cap inflation could have reached as high as 20% next year, meaning by April even a 10% increase in benefits might have lagged far behind price rises.
“Hopefully, the effect of the freeze will mean that the increase in benefits from next April is more closely aligned to what inflation will actually be come the spring.”
Tom Gilbey, equity research analyst at Quilter Cheviot says: “The cap is welcomed as it will help families stay warm this winter while the package of measures announced for businesses will be a lifeline to thousands of companies who were previously not subject to the price cap and were facing huge rises in bills from next month.
“Whilst it is positive that help is being given, it is unclear who is going to have to pay for this bill which might cost up to £150bn. It appears to be a good deal for energy generators who stand to benefit from this crisis and are able to lock in these higher profits with the British public potentially shouldering the cost.
“Considering Truss won her bid to be prime minister on the notion that she wants to lower taxes, it is unclear how this will be squared away considering the debt already taken on during the pandemic. Whether this proves to be popular among an increasingly exacerbated and sceptical general public is yet to be seen.
“While there have been rumours of a public information campaign to help reduce energy usage neither the package of measures for businesses nor homes directly address the fact that we must be looking to reduce energy consumption. Not enough has been done to alleviate the demand and usage of gas. This could be a good opportunity to group together as a nation and make fundamental changes to our behaviours to help us get through this crisis.”
David Robinson, chartered wealth manager at London-based Wildcat Law: “Short-term policies seem to be the tactic of this ‘new’ government. The much expected suspension of the Green Levy is a prime example of this. The money raised was used for a number of policies aimed at making the poorest homes in the UK more energy-efficient, thus benefiting people over the long term. Instead, the Government look like they are happy to mortgage the future for a gain that is unlikely to be as significant as the Levy. Make no mistake, the biggest beneficiaries of this will be the energy companies and their shareholders. Something needed to be done to ensure we did not have the spectre of thousands of households going through winter without heating but after having months to come up with a plan this appears to have been a Baldrick special. We are getting many of the negative sides of nationalisation without any of the potential benefits.”
Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages: “This will be a welcome relief for millions of people around the UK. However, we’ve already seen the Bank of England announce they will likely have to increase the base rate at a faster rate because of this announcement to try and combat inflation, which is clearly a Catch-22. According to reports, there are over 2 million homeowners who are due to see their fixed rate end next year who are now likely to be even more worse off. Less short-term pain now could result in more longer term pain.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “This is too little and will push millions into fuel poverty. Also, saddling the taxpayer with more and more debt will prove a huge drag on our economy and leave us scarred for a generation, while still not tackling the super profits these energy producers are making off the back of people losing their lives in Ukraine. This is typical Tory ideology: let the rich get richer off the back of taxpayers who will have to foot the bill.”
Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton: “I think it’s clear that the government had to act. And millions of hardworking families will be relieved that their bills will be capped this Christmas. However, this policy will be expensive and the question remains how much will the total cost be, who will pay this and when? For those who expected Liz Truss to be a radical free-marketeer, I think this shows that ideology rarely survives the practicalities of politics. Instead, the need for her to get voters on her side, and quickly, has prevailed.”