A “Black Thursday”
Energy prices skyrocket for millions of Britons
02/03/2022, 1:50 p.m
A crisis in the cost of living in the UK has been on the cards for some time. In addition to inflation and tax increases, the factors now also include a ceiling for energy prices. A British think tank warns that the increase will plunge one in four households into energy poverty.
About 22 million British households will soon have to pay hundreds of pounds more for gas and electricity. Regulator Ofgem raised the ceiling on energy prices by 54 percent to an average of £1,971 (€2,370) per household per year. Consumers experienced a “Black Thursday”, wrote the tabloid “The Sun”. The think tank Resolution Foundation warned that the increase would plunge one in four households into fuel poverty.
The government announced short-term aid, especially for poorer people. The council tax for many households is to be reduced, as finance minister Rishi Sunak said in parliament. In addition, a discount of £200 is planned, which has to be paid later. The promise once made by Prime Minister Boris Johnson to eliminate VAT on energy bills after Brexit is not one of them. The organization End Fuel Poverty Coalition spoke of a drop in the ocean. The new price cap is “devastating to catastrophic” for millions of people across the country.
“So far the government has done nothing”
With the “Energy Price Cap”, Ofgem determines how much money suppliers are allowed to charge for gas and electricity in the basic tariff. As of October 2021, that limit has been £1,277 per year. Energy prices have recently risen significantly around the world. Reasons include the cold winter in Europe, increased demand from Asia and the geopolitical tensions around Ukraine, an important gas transit country. Great Britain is particularly affected: it is one of the largest consumers of natural gas in Europe, but has significantly less storage capacity than many other countries.
The living cost crisis has been foreseeable for a long time. In the summer, around two dozen suppliers went bankrupt that had once attracted customers with cheap contracts and were now no longer able to pay the rising wholesale market prices. Around 3.8 million consumers were forced to switch to contracts from other providers, most of which were much more expensive. “So far the government has done nothing but maintain the retail price cap while sending wholesale prices through the roof and then bankrupting 50 percent of suppliers,” said Dale Vince of utility Ecotricity.
Soaring energy costs aren’t the only strain on households in the UK. The prices for consumer goods have also been rising steadily for months. Experts expect the inflation rate to soon be 6 percent. But this increase alone is not enough. Because the government wants to increase taxes and duties on April 1st – parallel to the increase in the energy price limit. Social security contributions will rise by 1.25 percent, and the total tax burden is higher than it has been in 70 years. Prime Minister Johnson and Treasury Secretary Sunak, who recently described themselves as “tax-cutting conservatives”, want to use this to shoulder the economic consequences of the corona pandemic.
Industry association reacts negatively
But even in business, the strategy is not well received. The government is risking a vicious circle of high taxes and low economic growth, said the head of the industry association CBI, Tony Danker. “We’re trapped.” The opposition accuses Johnson of squeezing the population instead of asking energy companies to pay. For example, the government has refrained from levying an additional tax on the profits of oil and gas companies and is approving tax cuts for banks. That could have raised billions, said opposition leader Keir Starmer. Energy giant Shell said its quarterly profit increased 14-fold on higher oil and gas prices.
The providers see themselves between all chairs. “Because of the price cap, most utilities are currently losing between £300 and £400 per customer per year,” Emma Pinchbeck, chief executive of industry body Energy UK, told the BBC. “The overall profit margin for energy retailers has been minus 1 percent for the past two years.” Most companies lose money all the time.