BRITAIN'S ENERGY SHOCK

BLOOMBERG - 24, MAY, 2022 - British consumers will face another sharp jump in their power and gas bills just before winter, adding to surging costs of almost everything from food to petrol.

The energy price cap is likely to soar to a record £2,800 ($3,499) in October, Ofgem Chief Executive Officer Jonathan Brearley told a panel of lawmakers on Tuesday. That will send about 12 million households into fuel poverty just as heating demand starts to pick up with the cold weather setting in.

The surge will pile even more pressure on Chancellor of the Exchequer Rishi Sunak to help consumers struggling with the worst squeeze on living standards since the 1950s. Even with the £9 billion of assistance announced so far, it won’t be nearly enough to ease the burden with inflation rising to the highest in 40 years.

Brearley will write to Sunak to warn him of the impending increase of more than £800 to annual bills for about 22 million households. The hike means that “more is needed” and Ofgem is calling on the government to increase support to customers, Brearley said.

There are about 6.5 million households in fuel poverty currently, but that may double after the October hike, he added. About a quarter of consumers are already in debt on their energy bills, according to price comparison website Uswitch.

That makes Sunak’s choice over whether to introduce a windfall tax on the profits of energy firms to raise money to support consumers all the more important. Pressure has been growing on him and Prime Minister Boris Johnson to enforce the levy, but many ministers on the government have openly opposed such a measure saying it will deter investments.

Sunak has asked officials to prepare plans for a possible levy on power generators as well as oil and gas producers. No decision has been taken yet, two people familiar with the matter said, asking not to be named.

Sunak “is instinctively against a windfall tax but if he feels that extraordinary times call for extraordinary measures then that’s up to him,” Business and Energy Secretary Kwasi Kwarteng told lawmakers in parliament on Tuesday. He said the government should be focused on growing the economy in order to help with energy costs.

Kwarteng said that they may be an announcement “soon” on expanding the government’s warm-home discount program that helps lower-income households, declining to give further details.

“The sheer scale and depth of Britain’s cost-of-living crisis means the government must urgently provide significant additional support,” said Jonny Marshall, senior economist at think-tank Resolution Foundation.

Suppliers Collapsing

More than two dozen energy suppliers have collapsed since August as wholesale energy prices surged. Most of those firms, some with just a few hundred customers, were the result of a deregulation of the market that allowed just about anyone to set up an energy supply company. Bill payers will ultimately be saddled with the burden.

Both Brearley and Ofgem’s previous head Dermot Nolan, also responding to questions from lawmakers on the panel, expressed regret for not doing more to help both suppliers and customers alike.

“There are significant lessons to be learned from this crisis and change is absolutely needed to the way we regulate the retail market,” Brearley said. “The price changes we’ve seen in the gas market are genuinely a once in a generation event not seen since the oil crisis in the 1970s.”

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