After spending a month declaring to anyone willing to listen that tax cuts, not “handouts” was the route out of the energy crisis, Liz Truss, in her first act as prime minister, has presided over one of the biggest fiscal interventions since the 2008 financial crisis by capping energy bills at £2,500 a year for the next six months.
As impressive as the headline figure sounds when compared with Ofgem’s energy price cap of £3,549, it is important to remember that this figure is based on the energy consumption of the average household. Energy bills can still exceed £2,500 pro rata this winter if a household needs to use more energy than the average.
This suggests that those households that contain someone who is disabled, ill or elderly and frail will only be slightly better off under the Energy Price Guarantee than under Ofgem’s price cap, which was due to come into force on 1 October. Given that inflation is expected to hover between 10% and 18% in January, paying sky high energy bills from an income that has not risen in line with inflation is going to be virtually impossible.
The Energy Price Guarantee has been billed as a bold action. But bold action would have been capping energy bills at the level they were a year ago – £1,277. The various cost-ofliving payments and energy bill rebates could then have been used to offset the 12% rise in the cost of food and other essential items. As it stands, low-income households will be short by £800 once the new cap comes into force, and that’s after including all the support payments, an analysis by the Joseph Rowntree Foundation has found.
The government could have also introduced an energy social tariff for low-income households and ordered the big six energy firms, along with the oil and gas industry, to pay for it via a windfall tax. They, too, are making extraordinary profits. Centrica, British Gas’ owner, posted adjusted operating profits of £1.3 billion for the first six months of 2022, up from £262 million a year earlier.
The new administration, however, opposes this option. Therefore, it does not take effort to realise that UK households are undergoing extreme hardship for no reason other than the fact that some Conservatives refuse to acknowledge that trickle-down economics – the idea that wealth flows from the wealthy to everyone else – doesn’t work, despite the stark evidence on display in the proliferation of food and heat banks across the UK.
