U.K. Scraps Energy Bill Price Freeze After This Winter
The energy price freeze -- at £2,500 -- was a landmark policy for Prime Minister Liz Truss.
(Bloomberg) -- The UK’s program to freeze energy prices to help households shoulder the burden of rising costs will be scrapped at the end of this winter, as the government seeks to salvage its credibility with investors.
It would be “irresponsible” for the government to continue exposing the public finances to unlimited volatility in international gas prices, Chancellor Jeremy Hunt said in a statement to broadcasters on Monday. The Treasury will investigate a replacement program that better targets lower-income households.
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The energy price freeze -- at £2,500 for the average household -- was a landmark policy for Prime Minister Liz Truss. It was supposed to run for two years, keeping bills stable for households amid the worst cost-of-living crisis for decades. The policy was expected to need about £130 billion, but could require more if wholesale gas prices increase with the government on the hook for the extra costs.
“I’m announcing today a Treasury-led review into how we support energy bills beyond April next year,” Hunt said. “The objective is to design a new approach that will cost the taxpayer significantly less than planned, whilst ensuring enough support for those in need.”
Predictions that average household bills could rise above £6,000 underpinned the government’s decision to intervene. While help was needed, the universal price freeze was poorly targeted, according to consumer rights campaigner Martin Lewis.
But the need to find a replacement by the end of winter will add to pressures on the government.
“Without the energy price guarantee, the government will need to fundamentally reform the energy market alongside providing unprecedented levels of support for energy efficiency schemes and financial support for the most vulnerable,” said Simon Francis, coordinator of the End Fuel Poverty Coalition campaign group.
Energy markets are already concerned that the crisis engulfing Europe will stretch into next winter. Stores of gas on the continent are fuller than usual but flows from Russia on the Nord Stream pipelines are halted indefinitely, making it more difficult to achieve the same next year.
The six-month package for businesses will be altered to better support those who need it and to incentivize energy efficiency, Hunt said.
Britain opened applications on Monday for as much as £40 billion ($45.1 billion) of funding to energy traders to stave off a worsening liquidity crisis. Volatility in the market means increased collateral requirements from exchanges to guarantee trades. The Energy Markets Financing Scheme will help firms facing temporary short-term financing problems and allow commercial banks to provide larger credit lines to approved companies.
The UK will keep in place its windfall tax on oil and gas companies, according to a government spokesperson.
(Adds detail on plan for businesses in 10th paragraph)
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