By Keith Anderson
Chief Executive, ScottishPower
It’s been another week of headlines for the cost-of-living crisis, and another week in which the projections for the next energy price cap have hit new heights.
People’s concern about how they’re going to make ends meet when the price cap goes up at the start of October is palpable, and turning to genuine fear. Most will never have been in this position before, and the scale of the burden will seem unbearable.
We can all cite the reasons for the dramatic increases we’re seeing – first the pandemic recovery as economies across the world kicked back into action, sending wholesale energy costs up, and then the unfolding consequences of Russia’s invasion of Ukraine. What’s increasingly clear is these tough conditions for UK households are going to get much, much worse before they get better – and are going to endure for longer than any of us could have expected.
That’s creating desperation and, quite rightly, a strong sense that something needs to be done. In the past week at ScottishPower we’ve seen three separate protests. Peaceful, dignified, and spanning political divides – and all with one message. People urgently need help to get through this.
I understand that need and I agree wholeheartedly.
The projections being made by energy economists bear out the fears that people feel in their hearts. Estimates released this month by Cornwall Insight, the go-to people for price cap projections show the October price cap going above £3,500 for an average annual energy bill, hitting £4,200 when the cap is revised in January, and peaking at £4,400 in April next year. For the next year and even beyond, the price cap will stay way above the levels that people are already struggling with today. And when you compare these new figures to Cornwall’s forecasts of just two months ago, prices are going to go much, much higher and be like that for much, much longer.
|Date of cap||Actual||Cornwall Insight estimate, August 2022||Cornwall Insight estimate, June 2022|
|Oct 2021||£1277|| || |
|Apr 2022||£1971|| || |
|Oct 2022|| ||£3582||£2980|
|Jan 2023|| ||£4266||£3003|
|Apr 2023|| ||£4426||£2758|
|July 2023|| ||£3810||£2865|
|Oct 2023|| ||£3781|| |
Cornwall Insight price cap forecasts, 9 August 2022
These numbers are off the charts and out of reach for most people across the country. So when protestors call for a freeze in the price cap, I can see completely where they’re coming from.
We welcomed the support set out by the Government following the April price cap increase. But with bills now forecast to more than double by January, and stay there throughout next year, it’s clear that households will need help of the same order again.
As Martin Lewis argued this week, and as I said earlier this year, we need to approach this in a different way. We should look to the lessons of the pandemic to offer support on the size and scale needed to see households through the worst of the pain this winter and over the course of the next two years.
That’s why we’ve set out proposals to protect the households who need most help ahead of the winter, when energy consumption is at its highest. Reducing these households’ bills by a further £1000 or so would take the sting out of the rising costs of energy immediately.
Alongside targeted support measures, the Government could set up a deficit fund to cover the difference between what people pay and how much it costs to supply their homes with gas and electricity. The fund could be underwritten by the Government, or a willing financial institution, and repaid over a 10-15 year period to smooth out the costs.
This approach would allow energy companies to recover their costs in full, and prevent further supplier failures.
This helps people in the here and now. And, crucially, it also buys time over the next two years to grasp the nettle of changing our energy system for the better – basing it on cheaper, greener and more secure generation from renewables.
We can use the time to speed up investment in cheap green energy, to cut energy use and emissions by more ambitious energy efficiency programme, and to make progress in delinking electricity prices from gas, to better reflect the use of cheaper green energy in our mix.
And once we are through the crisis and energy bills have returned to more affordable levels, we should replace the price cap with a social tariff to protect the most vulnerable in our society from fuel poverty.
Britain has rightly stood up for Ukraine, standing united with those in need and we must continue to do. But we must also support people here during these unprecedented times.
Unprecedented times call for unprecedented action. And we need action imminently.