A crisis is coming for UK energy prices and this is what has to be done
The word “crisis” is often overused. But when it comes to the outlook for energy prices, it is exactly right. By October, the annualised energy price cap for a typical household paying their bills by direct debit will have trebled to more than £3,500 in 18 months.
Fast forward to next April and it’s expected to rise again, to £6,600, before remaining at about £5,900 for the rest of 2023. Next spring a typical family could be paying 500% more than they were before the pandemic, and the UK’s overall annual household energy bill will have risen from around £30bn to more than £180bn in just two years. With the costs of energy permeating the wider economy, headline inflation is expected to exceed levels not seen for more than 40 years.
The response from government so far has ticked all four of the wrong boxes: too little; too late; poorly targeted; and overly complicated. Even after accounting for wage growth and benefit uprating, annual family costs are set to grow £3,100 faster than incomes on average between April 2021 and April 2023. If existing government support were to be extended, the average family will still be facing a black hole of £2,400.
There has been little from the Conservative leadership candidates to change these prospects. Rishi Sunak’s proposals are similar in size and scope to existing measures, and Liz Truss’ plans to cut national insurance would lead to just 15% of the benefits go to the poorest half of the population.
A freeze in the price cap this October is now needed to buy time. But it is a sticking plaster rather than a viable solution beyond a few months. At more than £116bn a year from April 2023, the cost of freezing energy prices in line with the April 2022 cap are similar to the entire running
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