Jeremy Hunt bowed to back-bench pressure today in his Spring Budget, extending until July the government’s Energy Price Guarantee for domestic consumers, at a cost put by expert observers at £ 2.6 billion.
Four million households on prepayment meters will also benefit by an estimated £45 a year from July. For the first time the Chancellor today ordered suppliers to reduce prepayment tariffs to the same levels as charged to direct debit bill-payers.
“Under a Conservative government, the energy premium paid by Britain’s poorest consumers has come to an end”, Hunt told cheering MPs.
The chancellor’s intention to respond on the EPG had been widely leaked. Standard variable tariffs remain at levels three and four times pre-Ukraine levels, despite wholesale prices tumbling due to months of European gas stocks being rebuilt after last year’s severing of Russian supplies.
Without the chancellor’s about-face, billpayers would have faced rises of up to 20 per cent. With it, the notional typical British household will continue to be cushioned, paying in the region of £2,500 for dual fuel supply over a year.
The extension to July is worth a nominal £160 for typical households, the Treasury calculates. It means households won’t feel the full force of Ofgem’s default Price Cap between April and June. This stands at £3,280.
When adding in the extension, the government claims a typical family will save £1,500 from the EPG and the Energy Bills Support Scheme over their lifetimes.
Analysts at Cornwall Insight believe that more than half a year of energy support from the Treasury is now in its final months, as falling supply & generation costs promise relief at last for bill-payers of non-adjusted tariffs.
Cornwall Insight calculates the EPG has cost £ 29.6 billion from public funds since Chancellor Kwasi Kwarteng introduced it in the autumn.
The consultancy’s Dr Craig Lowrey described today’s intervention as a ‘small price to pay, providing much-needed clarity for suppliers and to protect already hard-hit households’.
“While the government’s decision will come at an estimated additional cost of £2.6bn1 for the three months to July, our Default Tariff Cap (price cap) predictions indicate that the EPG costs will be short-lived, as average bills are expected to drop well below £2,500 in the latter half of the year”, Dr Lowery observed.
Cornwall’s latest calculations, below, are that falling generation costs will result in Ofgem’s default price cap will drop to around £2,000 as soon as July.
Critics of the government’s EPG have compared it to the success of European neighbours in capping retail tariff rises at 10% or lower, while Britain’s have tripled. Since the gas price crisis began in late 2021 with the world’s early stirrings from global lockdown, subsidies from Britain’s public purse have contrasted with France’s full nationalisation of EDF and legally enforced caps on tariffs.
From July, British households will pay the lower of the Ofgem Price Cap or the EPG, which will revert to £3,000 from July 2023 until the end of March 2024.
Opening his statement, chancellor Jeremy Hunt said the government’s energy support measures were among £90 billion of cost-of-living protections delivered this year, worth as much as £3,000 to some households.
As calculated by independent experts at the Office of Budgetary Responsibilty, inflation would fall to 2.9% inflation by the end of this year, from currently over 10%, predicted Hunt.
Municipal swimming pools will benefit from new support of £50 million, the Chancellor announced.
From the Energy and Utilities Alliance, chief executive Mike Foster welcomed Hunt’s extension. “It’s good that the Chancellor has listened to us in the energy industry as well as consumer champions who have all backed this move.
“What we now need is the Chancellor to listen to industry again, by supporting the move towards a hydrogen economy, in the first instance by giving the green light to blending this zero carbon gas with natural gas into our networks. This helps us all decarbonise without spending huge sums ripping out our gas boilers”, added the EUA boss.
At today’s Prime Minister’s Questions, SNP leader at Westminster Stephen Flynn upbraided the premier for paying privately to upgrade a grid connection to heat a swimming pool at his Yorkshire home, at the same time as Scottish homes faced the coldest days of winter. Average bills in Scotland had tripled in twelve months, said Flynn.
Rishi Sunak replied that the government had provided each household with £1,300 over the last year to shield them from rising bills.