An industry-proposed plan to protect UK households from eye-watering energy bills will need more than £100bn in funding over two years, paid off by taxes or energy customers in the long-term.
Scottish Power chief executive Keith Anderson proposed capping energy bills at £2,000 per year for the typical customer in a meeting with business secretary Kwasi Kwarteng last week, the Financial Times reported on Wednesday.
It said that under the plan, suppliers would meet the shortfall between the bill cap and wholesale prices for gas and electricity by borrowing from a state-arranged “deficit fund”.
That fund would be paid off either through tax income, spread over energy bills for up to 15 years, or through a combination of both, the FT said according to people with knowledge of the discussions.
Kwarteng reportedly dismissed the plan on the call with Anderson, apparently reiterating that no decisions would be made until the new prime minister was chosen by Conservative Party members on 5 September.
That would mean no respite would even be in the pipeline when the energy regulator Ofgem announces the new October cap this Friday, which is widely expected to top £3,000 per year.
The cap currently stands at £1,971 per year for an average household on a standard variable tariff, having jumped from £1,277 last August and £1,138 in February 2021.
Ofgem introduced the cap in January 2019 in a bid to prevent energy retailers from ripping off customers who remained with their suppliers while giving rock-bottom fixed-term deals to new customers.
It hovered around the £1,100-per-year level for typical households until it began creeping up in late 2021, in response to rising wholesale prices for gas and electricity, which have since skyrocketed in the wake of Russia’s invasion of Ukraine in February.
Prices have continued to surge in recent weeks, with many analysts and consultancies now anticipating an annual cap of more than £5,000 by next April – meaning bills would have increased almost fivefold in two years.
Reporting by Josh White at Sharecast.com.
