Energy Price Guarantee to end in April

I was not surprised by the announcement from the Chancellor today (17/10) regarding the shortened time period in which the domestic Energy Price Guarantee (EPG) will apply, for all the reasons discussed in our report –  Energy Price Guarantee – Counting the Cost – and my accompanying blog.

Our report released on 5 October, recommended that the government should use the cover of their bold intervention to review the universal nature of the domestic EPG, and develop options for targeted schemes which mitigate the gamble being taken on gas prices, particularly in the second year, whilst critically still protecting those who need support. Alongside this we emphasised the need for a focus on energy efficiency.

The Chancellors statement today resonates. In very challenging political, market and economic circumstances he is maintaining the domestic EPG support to April next year, but then looking at more targeted measures, thereafter, noting the volatility in prices the fiscal position may otherwise be exposed to.

Of course, if gas and power prices fall, it could be argued that keeping the EPG as it is currently would contain few risks. I would suggest though that as suppliers bought ahead for this winter there are likely to be c£30bn of costs already locked in. If gas and power prices rise into winter 23-24, without any change to approach, there would be exposure to heightened cost risks over which no UK Minister has real control. We can hope that they won’t, but in a febrile economic and market environment, hope is not a strategy and leaving uncovered downside risk would be very challenging indeed.

As the chancellor stated, “governments cannot eliminate volatility in markets”, and because of that simple fact, in my view, this move towards something more elastic, review-based and guarded was inevitable. Now constructive attention needs to turn to what a replacement scheme looks like from April to ensure that those who need support receive it, and that whatever options are taken forward can form the foundation stones of an enduring, fair and sustainable market after the current crisis subsides.

A world in which we move back to the default tariff cap cannot credibly be one that is amongst those options given the heightened cost environment likely to prevail in the medium term and the situation that arose before the EPG was implemented.

Work on refined domestic support, alongside developing a prospectus for what replaces the Energy Bill Relief Scheme for business, will now need to begin and begin rapidly. There are many ideas in circulation from the summer which I expect Cornwall Insight will be consolidating and evaluating in the coming weeks.

It will be vital that a Treasury led review avoids falling into a public finance led approach that is too far removed from social and economic realities for households. Hearts as well heads will need to be engaged.

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