Thank you for contacting me about the Energy Price Cap.
As the UK economy continues its recovery from the pandemic, we must confront the global inflationary pressures caused by the world economy coming swiftly back to life. Much of this inflation is being driven by the rising cost of energy due to increased demand worldwide – and that feeds through into pressures on the cost of living.
We must be honest that there are limited levers the Government has to deal with these global problems. The Government has already taken steps: reducing the Universal Credit taper rate, increasing the National Living Wage, freezing fuel duty for the twelfth year in a row, and launching a £500 million Household Support Fund to help the lowest-income households with their bills.
But the Government recognises that it must go further to help families with pressures on the cost of living. We must also be honest that over time, households will need to adjust to higher energy costs – but the Government can help ensure the adjustment to higher prices is smaller initially and spread over a longer period.
Following Ofgem’s – the independent regulator who sets the price Energy Price Cap - confirmation that the energy price cap will rise by £700 from April, we have announced a three-part plan to help with household fuel bills immediately and protect people against half of this increase – worth £350 per household, in a total package of support worth £8.6 billion:
• A £200 ‘smoothing’ rebate on energy bills for all households, to be paid back over the next five years at £40 per year – starting from April 2023;
• A non-repayable £150 cash rebate for homes in Council Tax bands A-D – equivalent to 80 per cent of all households, helping both lower and middle-income families;
• £144 million of discretionary funding for local authorities to support households not eligible for the council tax rebate.
The Government is also continuing with plans to increase the Warm Homes Discount and extend eligibility by one-third to 3 million vulnerable households which is worth £150.
While I am unaware of plans to introduce a tax on the windfall profits on North Sea oil and gas companies, I will pass on your comments to my colleagues at the Treasury.
I appreciate you are disappointed that Ofgem raised the cap in April which will affect around 22 million customers. I understand that the increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year. I am encouraged that Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.
Although those protected by the Energy Price Cap are paying a fair price, these customers may also be able to reduce their energy bills further by shopping around for a better deal. Changing energy provider has never been easier and switching energy can be done online or over the phone. Comparison sites provide useful information on which providers can give customers the best deal and, as a result, changing energy provider is likely to save households money on their energy bills. Almost 500,000 energy customers switched to a new supplier each month in 2020, according to figures from the industry group Energy UK.
If an energy company fails, the Government has been clear that it will not bail them out. It is wrong for the taxpayer to prop up companies who have poor business models and are not resilient to fluctuations in price. There are clear processes in place to ensure that all customers are supplied with energy. When an energy supplier fails, Ofgem typically appoints another supplier to take on serving its customers and there is no interruption to supply.
More broadly, I am glad that the Government is working to reduce bills and tackle fuel poverty, such as through the introduction of schemes to improve energy efficiency measures in homes. In addition, the Government’s Energy Company Obligation and expanded Warm Home Discount schemes will provide at least £4.7 billion of extra support to low-income and vulnerable households between 2022 and 2026.
Thank you again for taking the time to contact me.
Craig Whittaker MP