Changes need to be made to protect consumers, says Richard Neudegg, head of regulation at Uswitch
On August 26th, Ofgem will announce its latest increase in the government’s energy price cap.
The skyrocketing cost of our energy bills is a ticking time bomb to be handed over to a new prime minister.
When the new cap goes into effect in October, millions of households risk being pushed over a financial cliff as they head into the costliest winter on record.
Current forecasts put the average household bill at £3,244 as of October and even higher as of January – a staggering 158 per cent increase on the £1,277 we paid last winter.
Just as the new prime minister takes office in early September, millions of households will be receiving letters warning of the increased interest rates and the associated increases in their direct debit payments.
Whatever vision the new Prime Minister decides to pursue on the steps of Downing Street, rising energy bills will be the number one issue on families’ minds – and therefore the number one political issue in the new Prime Minister’s inbox.
This must be the moment when our leaders say, “Never again.”
Short-term aid will be essential this winter, but the government will not be able to afford such measures forever. Structural changes are urgently needed to avoid repeating this pain in 12 months.
There are three longer-term steps that should be taken.
First, it is time to reform the way the wholesale energy market works to reduce our dependence on fossil fuels. Decoupling electricity prices from gas would allow consumers to pay lower prices for electricity produced from renewable sources. It would also protect them from a repeat of the most aggressive price shocks caused by rising gas prices.
Second, let’s work on a national initiative to isolate homes with the same urgency that we’ve used Covid vaccines. Using less energy to heat our homes will significantly improve bills while reducing our reliance on gas.
Third, we must avoid the return of the traditional Big Six and help restore a functioning, competitive energy market.
Ofgem has placed a heavy protective ring around the remaining larger players in the market – but this protection means there is no incentive whatsoever for these giants to undercut the price set by the cap or develop new greener solutions to improve energy use. Consumers must be free to choose better options.
However, these longer-term measures will not protect customers this winter. As such, more immediate support is needed – and should be ready as soon as the cap increase is announced.
Households need to know exactly what support they are entitled to while letters from suppliers land on their doorsteps, otherwise they will find themselves in financial distress.
Earlier this year, as Chancellor, Rishi Sunak announced an energy support package based on a prediction that the price cap would be an average of £1,500 higher this winter compared to last winter. There would be £400 rebate on bills for all households, plus grants for those receiving certain benefits, bringing total support to a maximum of £1,500.
However, current price cap forecasts suggest that the maximum value of this package will leave the most vulnerable households with an average deficit of around £500.
It is right to focus most of the support on those who are financially vulnerable, while recognizing that all households will need some help.
We think the £400 should be increased to £600 for all households, which works straight into bills as a monthly £100 rebate every winter month from October to March.
For low-income households, the current living expenses payment of £650 will be split between the July payment and another payment in the autumn. No payments are currently due over the more difficult winter months so a further payment of £300 should be made in January.
Finally, with more households going into debt this winter than ever before, we must urge suppliers to commit to suspending the forced installation of prepayment meters during this time of crisis. The risk of self-shutdown is so much higher when people don’t have the money to top up their meter.
The election of the Conservative leadership must not compromise the government’s duty to put people at ease. Candidates should put aside their personal squabbles and band together to align on a plan that will help turn on the lights.
Richard Neudegg is the Head of Regulation at Uswitch