‘Catastrophe for millions of people’

The cost of living crisis facing households across the UK is set to intensify drastically after the energy regulator Ofgem today (February 3) confirmed a unprecedented 54 per cent increase in the energy price cap.

The increase will mean that effective April 1, more than 60 per cent of households who are thought to be on energy deals linked to the price cap will see their energy bills soar as the cap increases to an average of nearly £1,971 a year. This £693 spike represents the steepest every increase in household bills on record.

The government has said it will intervene to help people with their bills by granting loans to energy suppliers, who will then pass on rebates to consumers. But Unite has strongly condemned this plan as it highlighted how this ‘heat now, pay later’ plan will mean all of us will end up paying higher bills in the long-term as energy suppliers pay back these loans.

What is the energy price cap?

The energy price cap was introduced in 2019 to ensure that consumers weren’t being ripped off by energy suppliers. Adjusted by Ofgem twice each year, the energy price cap is the highest price that energy suppliers can charge a household on a so-called ‘standard’ or default tariff.

Prices are only capped per unit of gas and electricity, meaning if you’re on a capped tariff, there isn’t actually a limit on how much you could potentially be charged. The new £1,971 annual figure for the energy price gap is only an average for a typical household – but if you go over and above average usage you’ll be charged more.

It is estimated that currently 22m households – 60 per cent of all households — are on energy capped bills. Those who haven’t switched their tariff in over a year or those who were transferred to a new energy supplier after theirs went bust will likely be on an energy capped tariff.

Why has the energy price cap risen so drastically?

Today’s unprecedented rise in the energy price cap reflects the huge increase in wholesale energy prices, which are the prices the suppliers themselves have to pay for gas and electricity. Since January, wholesale gas prices have increased by a shocking 250 per cent.

A number of factors have converged to fuel this unprecedented spike in prices, which has created a worldwide squeeze on energy supplies over the last year as demand has soared.

Last year, more than 20 UK energy suppliers went bust since they could not cope with spiking wholesale prices and weren’t able to pass on full costs to consumers because of the energy price cap.

This is in part why Ofgem has lifted the price cap so drastically – but now ordinary people will be exposed to potentially catastrophic rises in their household energy bills. At a time when a National Insurance increase is just around the corner in April and food prices too have increased dramatically, this could not have happened at a worse time for ordinary working people.

The price cap will again be revised in October – and could well be increased yet again.

What is the government doing to help?

Chancellor Rishi Sunak today (February 3) announced a support package in the wake of the extreme rise in the energy price cap to help people with their household bills. But as Unite and others have highlighted, such support won’t even begin to touch the sides of what’s needed to help families who are already struggling amid a cost of living crisis.

A main plank of the support package is a scheme which will make £5.5bn in loans available to energy suppliers, who will then pass on £200 rebates to their customers in October. Energy suppliers will recoup money to pay off the loans by charging consumers £40 extra over the next five years.

Sunak said the government will also fund a £3.5bn council tax rebate scheme for households in bands A through D, with the average rebate worth £150. A discretionary fund of £150m will be made available to local authorities to give extra support to those who won’t benefit from the council tax rebate, such as those who don’t currently pay council tax or are on a higher band who need help. Eligibility for the Warm Homes Discount available to low-income households will also be expanded.

Why are the government’s proposals wrong?

The loan scheme has been widely criticised because it fails to address the root problems of the UK’s energy sector and is only a sticking a plaster that provides short-term relief for long-term pain, with ordinary families being left to foot the bill.  

The government’s loan scheme assumes that wholesale energy prices will soon fall, but analysts estimate that prices could actually continue increasing over the next three years – and if Russia invades Ukraine, the situation could become much worse.

Council tax rebates could well be swallowed up by an expected hike in National Insurance in April, and pales in comparison to the £20 a week the government cut from Universal Credit last year, which served as a vital lifeline for households who have been struggling.

‘At the mercy of unstable energy markets’ – what Unite is calling for

Commenting, Unite general secretary Sharon Graham said, “The energy price cap rise will turn the cost-of-living crisis into a catastrophe for millions of people. This will plunge at least one in four families in Britain into fuel poverty.

“The policy announced today to provide loans to energy companies to reduce bills, in the short term, is yet another knee-jerk reaction. It fails to address the calamitous increases coming in customer bills and ultimately means ordinary families will foot the bill for an energy crisis not of their making,” she added.

“Given that taxpayers’ money is paying for the bail-out, these loans must come with substantial strings attached, including guarantees that jobs will not be lost. Otherwise, they will just vanish into big corporate energy balance sheets.

“Without government investment in sustainable domestic sources, such as new nuclear and renewables, the UK public, as well as the economy, will continue to be at the mercy of unstable energy markets.”

What you can do

The government has once again shown that it wants ordinary families to pay for a cost of living crisis not of their own making, and refuses to support those who need the most help.

Sunak’s interventions were especially feeble, given his failure to stand up to energy companies who are raking in billions in profits. Just as his announcement was made, Shell announced its highest quarterly profits in eight years, and said it would increase shareholder dividends by 4 per cent.

Unite is fighting back and urging all its members to attend the People’s Assembly cost of living demonstrations being held in Manchester, London, Nottingham and Bristol on Saturday, February 12 to make their voices heard. Find out more about how you can take part here.

By Hajera Blagg