Protecting UK families from fuel bill crisis set to cost £100bn

One of the UK’s biggest energy groups has told ministers that a bailout to protect households from rising bills will require more than £100billion in funding over two years, pointing out the scale of crisis gripping Britain as gas prices rise.

Keith Anderson, chief executive of Scottish Power – one of the ‘Big Six’ energy providers – met Business Secretary Kwasi Kwarteng last week and proposed capping household energy bills at around £2,000 per year, according to people familiar with the talks.

Liz Truss, the Tory’s main leadership candidate, acknowledged that new support for households may be needed as rising bills are set to accelerate, but maintained her distaste for “handouts”.

However, the government has become increasingly concerned about the scale of the energy shock in recent weeks as petrol prices have risen sharply.

Philippe Commaret, managing director of customers at energy supplier EDF, warned on Tuesday that the UK was facing a “catastrophic winter”, telling the BBC that half of households could fall into energy poverty without intervention.

Under Anderson’s proposal, household bills would be frozen for two years near the current price cap of £1,971, which is already nearly double the typical bill of 18 months ago.

Households face another jump in the ‘ceiling’ of energy bills on Friday when energy regulator Ofgem is due to announce a new limit, which analysts predict will rise above £3,000. Banks and consultancy firms expect the cap to be raised above £5,000 by April.

Under Scottish Power’s proposal, suppliers would cover the gap between the cap and the wholesale price of gas and electricity by borrowing from a ‘deficit fund’, organized by the government through commercial banks.

The cost would be gradually repaid by the public either by public borrowing financed by general taxation, spread over the bills of the next 10 to 15 years, or spread between a combination of the two.

People familiar with the talks said the ‘mood music’ in government had changed in recent weeks as gas prices rose, with Russia cutting supplies to Europe in retaliation for sanctions over its invasion of Ukraine.

Anderson first presented the plan in the spring to a sympathetic Kwarteng audience, according to the business secretary’s allies. Rishi Sunak, then Chancellor, instead set up a £15billion fund comprising one-off payments of £400 to every household in the country.

However, Kwarteng is now on course to become Chancellor of the Exchequer, with his close ally Truss, the foreign secretary, leading Sunak in the polls for the Tory leadership race.

The Business Secretary discussed the plan with Anderson during a call on Wednesday last week, but said no decision would be made until the Conservative Party chose a new leader to replace Boris Johnson on September 5 , said people briefed on the talks.

The plan would cost more than the coronavirus furlough scheme that paid millions in wages during the lockdown phases of the pandemic. It cost £69bn between March 2020 and October 2021.

Industry executives involved in the talks said the final cost of the proposal was not fixed. One option would see the government target support only to the 5 million households who receive Universal Credit payments rather than all 28 million households in the UK, although there are fears that the scale of increases in the Energy bills also overwhelm many higher income households.

The cost of the plan could also increase if wholesale energy prices continue to rise, potentially leaving the government with a large uncapped liability.

People familiar with the talks said the proposal could help calm inflation across the economy, although many small businesses, which are not covered by the price cap, may need help. additional support.

Keir Starmer, leader of the opposition Labor Party, said as prime minister he would cap prices at their current level for six months at a price of around £30billion.

A government official said Anderson’s proposal showed the industry believed the crisis could continue for two years.

“This not only demonstrates the scale of the problem, but also how long it is likely to last. . . it shows how long the industry thinks prices are going to stay high,” he said.

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