Without any further action, UK households and businesses will face catastrophe this Winter
Ahead of the incoming rise to the price cap, EDF Customers Managing Director, Philippe Commaret, outlines three steps the next Prime Minister's Government can take to help people with the energy crisis.
Last week Ofgem announced the biggest increase in the price cap’s history and sadly the situation is only going to get worse.
The tragic war in Ukraine and the weaponising of gas supplies by Russia is taking its toll on a wholesale energy market which was already spiralling upwards last year. Those wholesale prices are increasing bills across Europe but in the UK our reliance on gas for electricity generation makes us especially vulnerable.
In January, the price cap is predicted to break the £4,000 mark and in April the cap could increase even higher to almost £6,000.
For households that means switching the boilers on to heat the home this Winter will be a huge worry. Despite the £400 already promised by the Government to help with bills from October, over half of the UK’s households will be in fuel poverty from January. That means 15 million homes will be spending more than 10% of their net income on fuel.
Businesses are also suffering. If more businesses are unable to pay their energy costs, that means even more hurt for those employees and their families.
Whilst EDF can’t control the global energy crisis, we can do everything we can to help our customers get through it.
In 2022 EDF doubled the financial support available to those in need to over £10 million, we onboarded hundreds of new advisors to make it easier for more customers to access help, and last week we announced the launch of a campaign to contact more than 100,000 of our most vulnerable customers to offer them tailored support. Our Energy Hub app also provides customers with detail on their energy use and practical advice to help cut bills by up to £100.
But the growing scale of the energy crisis is now so big that the industry is unable protect customers alone. Despite Government support measures announced in May there will have to be more intervention from the new Prime Minister and their Government, whoever that will be come September 5th.
There are three clear steps the new Government can take to help customers now and in the long term.
1. Cap revenues from VAT
As bills go up, so do VAT revenues.
Putting a cap on those revenues and cutting the VAT paid on their energy wouldn’t completely offset the cost increases facing customers, but it would stop the pounds people pay in tax going up as bills rise.
Cutting the 5% VAT paid on residential energy bills could make the crucial difference for many.
For businesses, who still face a 20% rating on their energy bills, the potential savings of a VAT reduction are even more significant.
SMEs in particular will need that support. They’re the lifeblood of the British economy, accounting for three fifths of jobs and half the turnover of the UK’s private sector. If high energy bills force our shops, hairdressers and pubs out of businesses, that will be devastating for the families involved and devastating for the UK economy.
2. The EBSS must deliver support for customers now, not later
With only September to act before prices rise on 1st October, any Government solution to limit the impact of the crisis must be significant enough to see UK households through the Winter and early next year.
We’ve seen many different suggestions on how the Government should do this over recent weeks. Ultimately that is for the new Government to decide, and we will continue to support them in that process.
But any action has to be enduring and could take time to develop. We need to look at options available now that can also buy time.
One such option would be to deliver the £400 for all bills through the Energy Bill Support Scheme over the next three months, rather than the six currently planned.
That would double the support for customers from now until the end of December - at no extra cost to the Government - and use an existing framework to deliver that help.
Whilst more targeted support will be needed for some customers, making this simple change to the EBSS could give the much-needed breathing space required to find a longer-term fix to the crisis.
3. Any long-term solution must include a massive energy efficiency drive
It is clear that any long-term solution to the crisis must be urgently explored. That includes the proposed deficit fund which could limit the amount of wholesale costs reaching customer accounts in the immediate future.
But any solution must be introduced alongside a national retrofit programme which is the most dependable way of reducing bills and insulating households from price shocks in years to come.
Crucially, as bills go up, so too do the savings to be made from new energy efficiency measures in our homes. For example, new loft insulation in a typical home on Ofgem’s current price cap would save around £250 on an annual bill. However that saving goes up to around £550 when the new price cap goes live on October 1st.
We must also remember that this crisis is made worse by our addiction to gas. Ultimately reducing our energy consumption by improving energy efficiency will minimise our reliance on gas and insulate customers permanently from future fossil fuel price shocks.
Whilst a small group of fuel poor customers can access help with energy efficiency through the ECO scheme, there is no policy to support the vast majority of British homes.
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