The fall in the household energy price cap announced last week attracted much attention but people should resist any temptation to think the big noise means things are going to become any much easier on this front.
As winter looms again, the crucial point is that the cost of electricity and gas for households in the UK remains excruciatingly high.
It is obviously better that the energy price cap has fallen rather than risen but what is important here is to put the latest number in the context of more normal times.
Doing so should lead to the following conclusions.
One, the fall in the price cap is not going to ease the burden that much. Two, energy prices remain far, far higher than they were as recently as the spring of last year. Three, the energy price cap system in the UK does not look fit for purpose. Four, the UK Government has failed dramatically, in its policymaking, to ensure affordable energy is delivered to UK households.
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And five, Prime Minister Rishi Sunak and Chancellor Jeremy Hunt should look at providing additional financial assistance for fuel bills to the most vulnerable households and consider across-the-board support on this front. Universal support was provided last winter.
The Conservatives might argue that households are not facing such high costs for energy as they were last winter.
However, the counter-argument would be about the cumulative effect on households over two winters from the Tories’ failures when it has come to the household energy supply market. Especially given household energy costs will, as things stand, not be that much lower this winter than last.
And the pressure on many households from higher interest rates will be much greater this winter than last, given the procession of rises in borrowing costs implemented by the Bank of England in between times.
Some people could have formed the impression from the hullabaloo over the fall in the energy price cap announced last week that the cost of household electricity and gas is going to plummet. The reality is quite different.
Energy regulator Ofgem announced last week that, “from 1 October 1 2023 the energy price cap is set at £1,923 a year for a typical household who use gas and electricity and pay by direct debit”.
This is the figure which will apply from October to December.
So how much is it falling by?
This is where people might be surprised. The current level, applying from July to September, is £2,074, so the fall is just 7%.
And what is far more pertinent is the comparison with where prices were before their excruciating surge.
In August last year, Ofgem announced the energy price cap would increase to £3,549 per year for dual fuel for an average household from October 1, 2022.
This was 80% higher than the £1,971 per year figure that applied from April 1, 2022, which was itself a 54% increase on the £1,277 cap which was in place in the prior six months.
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We should remember that the £1,277 was at the time a record high. The price cap that will apply from this October is more than 50% higher than the £1,277 level that was in place until March 31 last year.
Between April and October 2021, the energy price cap was £1,138. And, in the six months prior to that, it was £1,042.
Although it was at £4,279 between January and March this year and at £3,280 between April and June 2023, assistance from the UK Government meant the cost of electricity and gas for a typical dual fuel household was £2,500 per annum. The same was the case between October and December last year, when the £3,549 price cap was in place.
The UK Government support was surely inadequate, as can be seen by comparing a £2,500 annual cost with what the energy price cap was in normal times. The support was also way too late in being confirmed.
Last winter, the UK Government also provided a £400 per household discount on electricity and gas bills, in addition to the support provided through the energy price guarantee to keep the bill for a typical household at £2,500 per annum.
If you take into account the fact that there is no discount for this winter, and compare the forthcoming price cap of £1,923 with the £2,500 per annum bill a typical dual fuel household faced last winter before this was reduced by the £400 discount, you can see things have not got much better at all.
And consultancy Cornwall Insight has forecast that a typical bill could rise again in January to more than £2,000 per annum, on the current basis of calculation.
So, yes, as things stand, it looks like another miserable winter.
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The Tories have been found sadly wanting when it has come to a long-term energy strategy. This is utterly lamentable given the UK’s advantages when it comes to renewable energy and its oil and gas resource. Meanwhile, the energy price cap continues to look about as useful as a chocolate teapot.
On top of the surge in interest rates and the general inflationary pressures which have been plaguing households for so long now, another winter of sky-high energy bills is the last thing anyone needs. It will also be another headwind for a UK economy that does not have its troubles to seek and particularly for consumer-facing sectors such as hospitality and retail.
The Conservatives often seem entirely out of touch, however, when it comes to the budgets of ordinary households, not that they appear to care that much in any case.
However, they have a responsibility to help people with an energy price crisis that is in significant measure of their own making.
The likes of French President Emmanuel Macron took decisive action on energy bills a long time ago.
The Conservatives continue to sit on their hands.
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