After the hopeful good vibes in Liverpool, here comes a reminder of what is coming this winter: a mighty new year shock in energy bills, hitting the poorest hardest, that the government looks unprepared for.
From the quarterly price cap level of £1,723 that will apply from Thursday for an average dual-fuel household, take your pick from a range of forecasts for the first three months of 2027. The energy consultancy Cornwall Insight says £1,999. The big supplier EDF thinks £2,076. Split the difference and we’re talking about an 18% quarter-on-quarter rise in the unit rate at the worst time of the year, the months of peak consumption.
Everybody knows the immediate reason – soaring gas prices – but the government cannot claim to be surprised by events. The threat of a prolonged price spike has been present ever since Donald Trump’s Middle East misadventure became more than a one-week affair.
The government, it’s true, has fiddled at the margin. Rachel Reeves, when chancellor, took a chunk of green levies into general taxation from April. Andy Burnham cut VAT on electricity from 5% to zero for six months, starting on Thursday, in one of his “breathing space” measures. But what is missing from the government’s response is properly targeted help for the most vulnerable.
There is the warm homes discount scheme – worth £150, used by 5.5m low-income households last year and paid for by all bill payers – but virtually everybody agrees it is inadequate for the bills on the way and misses swathes of households who would fall within a better definition of “vulnerable”, such as those with high energy needs for health reasons.
The consensus answer, promoted by various thinktanks, charities, regulators and energy companies for years, is a well-designed flexible social tariff or discount scheme.
Here, for example, was the chief executive of Ofgem as long ago as February 2023 after the gas price spike caused by Russia’s war on Ukraine: “We think that, with bills continuing to be so high, there is a case for examining with urgency the feasibility of a social tariff for customers in the most vulnerable situations.”
Three winters later, it is hard to spot signs of urgency on the part of successive governments. Nobody pretends a social tariff is easy to design. At heart, it’s a data exercise that would have to take in household income (as opposed to information on individual incomes held by HMRC), health records and energy consumption. Cliff-edge judgments would have to be made. Perfection would be impossible.
But the result would surely be better than what will come this winter, which will probably be John Healey upping the level of the warm homes discount in next month’s budget because it’s the only lever available to him.
In addition, Healey could conceivably remove VAT from gas as well as electricity (though that would run against the national electrification agenda). Or, as urged by 120 organisations a fortnight ago, he could take more of the “hidden taxes” of energy transition into taxation (there are excellent reasons to do so, though all will look expensive from his point of view).
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Miatta Fahnbulleh, the energy secretary, seems to recognise the mess she has inherited. She could hardly miss it now that unpaid consumer debts in the energy system are projected to reach a colossal £7bn by the end of this year. “There is a question that needs to be answered … we have to think about the costs and how we recover it in the most fair way,” she told this site’s Politics Weekly podcast this week.
Yes, that is indeed the question, and it’s encouraging that Fahnbulleh is not parroting her predecessor’s dreamy line about “£300 off bills by 2030”, because everybody can also see that “stubbornly high” – EDF’s projection for bills for the end of the decade – is more realistic. Higher “non-commodity” costs are coming down the track even when the gas price falls.
But it does not sound as if the government is even close to settling on a joined-up model for bill support for the most vulnerable that could serve for this winter and future winters. It’ll be the usual last-minute scramble for ideas and higher levels of fuel poverty than needs to be the case. The multi-year dithering is inexcusable.
