The energy industry has rallied behind a plan to create a crisis fund that could prevent bills from rising next year and provide a lifeline to households struggling with the cost of living.
Energy UK, the industry’s trade body, has written to the chancellor, Nadhim Zahawi, to back calls for a “deficit tariff scheme” to be introduced as a long-term solution to the energy crisis.
Under the plan, commercial banks would put cash into the state-backed fund, which suppliers could use to freeze customers’ bills at the current price cap of £1,971 for two years.
The cost of the scheme would then be paid back over a period of 10 to 15 years through a surcharge on bills or through taxes. However, the scheme could create a debt pile of up to £50bn, far more than alternatives such as Labor leader Keir Starmer’s £29bn plan to freeze the price cap.
The intervention of Energy UK, which counts major industry players among its members including EDF Energy, Ovo and National Grid, will give more weight to the proposals, which were first presented earlier this year.
The Treasury is assessing ways to support households with the cost of living crisis this winter, with the intention of presenting the incoming prime minister with a menu of options after the contest to replace Boris Johnson ends on September 5.
Energy regulator Ofgem is due to announce the level of the next industry price cap on August 26. Experts expect annual bills to reach £3,582 from October 1 and then top £4,000 from January.
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The Guardian revealed this week that Centrica and Ovo backed the idea, which had been pitched to the government by fellow suppliers ScottishPower and E.ON.
Dhara Vyas, director of advocacy at Energy UK, said: “Energy bills will remain high for the foreseeable future, so it will be crucial to put something in place to protect customers from them. A backed loan scheme by the government could help do it all by spreading the costs of a few exceptionally volatile months over a much longer period.
“The high cost of energy, driven by record wholesale gas prices that continue to rise, is inevitable today. Suppliers need to recoup these costs, otherwise we will see more of them go out of business, adding more expense and disruption to customers. But this way we can address more increases before they hit customers’ bills.”
The scheme would take time to set up, with details unlikely to be finalized until early next year. Vyas said that in the meantime, the most practical way to provide urgent support this winter would be an increase in the existing support plan announced by Rishi Sunak in May.
Energy UK argues that an increase in funding to the Energy Bill Support Scheme, which will shave £400 off every household’s bill over a six-month period from October, is the fastest way of “offering the support that customers urgently need”. of Christmas”.
Energy UK’s letter also called for the establishment of an energy expert group to study long-term ways to keep bills affordable for households and businesses. And he wants the government to consider creating a dedicated energy department. The industry is under the competence of the Department of Business, Energy and Industrial Strategy.
It emerged on Wednesday that Ofgem director Christine Farnish had resigned, accusing the regulator of favoring businesses over consumers with a rule change that would add up to £400 to the average UK household’s energy bill.