Read on for a recap of this week’s statement from the Chancellor Jeremy Hunt, covering all the energy and climate announcements and what they mean for you.
The major headlines
- The Energy Price Guarantee will continue until April 2024, but at a reduced rate. The average UK household energy bill will now be around £3,000 (but unit prices are yet to be announced).
- There will be targeted support for the most vulnerable households; £900 for those on means-tested benefits, £300 for pensioners and £150 for those on disability benefit.
- £6.6 billion in additional funding to be spent on energy efficiency, with a new ‘energy efficiency taskforce’ to be established.
- Nuclear power is the focus of efforts to increase UK-based energy generation, with Sizewell C given the go ahead.
- The windfall tax on oil and gas companies has been increased to 35%, with renewable and nuclear producers of electricity also having a 45% windfall tax imposed on their excess profits.
- There was mention of energy support for businesses, but the details won’t be revealed until later in the year.
What’s happening to the Energy Price Guarantee?
The current Energy Price Guarantee has kept the unit price of gas and electricity at an artificially subsidised rate for domestic customers. When Jeremy Hunt took over as Chancellor he announced that this support would come to an end next March, leaving many of us wondering whether we’d be facing a cliff edge of any prices from April 2023 onwards. In today’s statement he announced that the Energy Price Guarantee would continue until April 2024, but at a reduced rate.
There aren’t yet any unit prices for electricity or gas, but the Chancellor estimated that the annual cost for an average household in the UK will rise to £3,000 next year. That’s up from the current caped bill of £2,500, but lower than Cornwall Insight’s current prediction for next April of £3,702. Don’t forget, the Energy Price Guarantee is just an average; you can pay more or less, all according to how much energy you use.
Will there be support for vulnerable households?
Mr Hunt began this portion of his statement by saying that the Government would provide targeted support, “to help our most vulnerable citizens with the cost-of-living.” This support will take the form of one-of payments aimed at helping the same ‘groups’ of households helped by the current cost-of-living package:
- £900 for those on means-tested benefits
- £300 for pensioners
- £150 for those on disability benefits
There is yet to be any clarification on when and how these payments will be made, but it’s likely they’ll follow the same pattern as those promised in this year’s package and arrive in people’s bank accounts towards Winter 2023, possibly in more than one payment. There have been concerns from some analysts that some of the most vulnerable households don’t fall into any of these categories, which means they will inevitably miss out on this support. The ‘one-off payment’ approach can also cause its own problems. Chief Executive of the Think Tank Resolution Foundation Torsten Bell has pointed out that this approach creates ‘cliff edges,’ where people who are close to the limit but don’t qualify for support will be in serious financial difficulty with nowhere to turn. Other commentators have also pointed out that payments like this are often swallowed up in bank accounts if households are already struggling.
Despite some of these issues, it is positive to see the Government targeting support at some of the most vulnerable households. In addition to these on-off payments, the Chancellor also announced a twelve-month extension of the household support fund worth £1 billion, which enables local authorities to provide support to households who ‘fall through the gaps’ of other support schemes. By the end of the year, off-grid oil and gas customers will also see the support offered to them double to £200, although whether this is enough to offset the worst impacts of rising prices remains to be seen.
What about the long-term future of energy?
As well as clarifying the immediate support that will be offered from April 2023, Mr Hunt expanded on the Government’s plans for the future of energy independence and efficiency in the UK. An increase of £6.6 billion in funding for energy efficiency was announced, in addition to the £6.6 billion already earmarked for this purpose. This money will be available from 2025 and will likely form part of a push to insulate the UK’s aging and inefficient building stock, with the aim of reducing demand from buildings and industry by 15% by 2030. Expanding efforts to promote awareness and uptake of energy efficiency is an essential part of our push for Net Zero.
It was also announced that the Government will be signing the contracts for the development of the Sizewell C nuclear plant in the coming weeks, with the suggestion that it will provide power to six million homes for 50 years, creating 10,000 skilled jobs and providing 7% of our total electricity needs. This plant represents a sizable investment at £700 million and will take years to build, not generating power until the mid-2030s.
Are gas and oil companies going to be taxed on their profits?
The Chancellor announced that the current windfall tax on gas and oil companies (which is at 25%) would be increased to 35% from January until March 2028. Renewable and nuclear electricity generators will also pay a windfall tax of 45% during this period. Altogether it’s estimated that this will generate around £14 billion, although some Government estimates suggest the figure could be as high as £40 billion in total over the next six years.
Remember that a windfall tax is an additional tax paid specifically on excess profits that a company has made based on factors outside of their control. In this case, the war in Ukraine and continued issues relating to the Covid-19 pandemic.
Important points, easily missed
It’s not only what the Chancellor announced in the House of Commons that’s important, but what’s going on behind the scenes too:
- The period for assessing the next price cap (which is still happening behind the scenes regardless of the Energy Price Guarantee put in place by the Government) starts today. Cornwall Insight’s figure of £3,702 could change significantly between now and March.
- If the price cap turns out to be lower than the Energy Price Guarantee (which is unlikely), consumer will go back to paying the lower capped unit price and the Government will stop subsidising the unit price during this period.
- A consultation is currently happening to look at whether future price guarantees could be based on how much energy a household uses. So unit prices would increase with usage, with the first ‘x’ amount of energy at a lower price, which then tips into being more expensive if this threshold is crossed. This is based on the idea that lower income households use less energy.
- There is some talk that after April 2024 a ‘social tariff’ could be introduced, whereby the most vulnerable households would automatically be placed on lower energy tariffs. This is based on the idea that we’ll be back in a competitive market where there are deals to be done and ‘switching’ between different suppliers is back in business.
If you’re struggling to keep up with rising energy prices, we’re here to help.
Speak to one of our energy advisors for advice on a range of energy topics. There is often grant funding available to help you make your home more energy efficient, including installing boilers, insulation and central or low-carbon heating. If you live in Gloucestershire or South Gloucestershire, call us for free on 0800 500 3076. If you’re based in Herefordshire, our freephone number is 0800 677 1432.
If you’re struggling to manage or understand your bills – especially in the face of rising prices – and are worried what this year will hold, our Energy Advocates have your back. If you don’t know where to start and are battling with anxiety produced by your home energy, they will help you feel in control. If you live in Herefordshire, use this link to get in touch with the advocacy team in your area. If you’re based in Gloucestershire or South Gloucestershire, click here to get in touch.
