The best news (but, critically, still not good news) for hard-pressed energy consumers this week could be found away from the chancellor’s tweaks to national insurance thresholds on Wednesday. It was the calculation by the consultancy Cornwall Insight that the energy price cap may not hit £3,000 when next adjusted in October. The latest estimate, derived from observing wholesale prices for gas and electricity, is £2,512.
There is no sense in which the £500-ish difference can be considered a saving, of course. An average bill for households of £2,500 or thereabouts would still be a mighty increase from the £1,971 that will apply from the start of next month, which itself is a jump from £1,277 today.
Instead, the volatility in estimates is a reminder that a lot can happen in the course of a few weeks or months. Today’s wholesale energy prices look slightly less horrible than those of a couple of weeks ago, but the position can flip again. The “observation window” for the October price cap runs until the end of July.
Thus Rishi Sunak’s measures for low-income households look little more than hopeful responses that could be overtaken by events. The relative value of a national insurance reform worth £330 a year for an average worker depends in large part on whether that worker’s household is facing an increase in energy costs of £700 or £1,500 or more in the next year. Cuts to fuel duty may help at the margin but could also be rendered irrelevant by market forces.
Sunak, remember, unveiled his £9bn energy-specific package for consumers in January – so before Russia’s invasion of Ukraine created more market pressures – and the only directly related addition on Wednesday was an extra £500m for the household support fund, which is administered by local authorities.
The chancellor trumpeted the sum as a doubling in resources, but it is a doubling from a low base. Instead of £1bn, several billions would be needed to put a meaningful dent in predicted levels of fuel poverty. For context, the Treasury saved £5bn a year when it cancelled the £20-a-week pandemic uplift in universal credit. It is a case of taking with one hand and giving back substantially less, in instalments, with the other.
The bottom line is that, under all likely scenarios, millions of households will still face energy bills that are unaffordable and for which they could not reasonably have been expected to prepare. The open question for next winter is the degree of financial pain. If he really wished to show he was “standing by” low-income households, Sunak would have committed to reworking his models and being more generous if the energy storm takes a turn for the worse. He didn’t.
VAT cut on green homes fails to impress
In similar vein, the scrapping of 5% VAT on green home improvements such as solar panels, heat pumps and insulation products for the next five years looks a mere tweak. The marginal saving may incentivise a few households to commit to the investment, but not many, one suspects.
An ambitious national energy-saving programme would involve serious tax breaks and subsidies, rather than modest VAT concessions. The last time the UK funded a serious insulation programme was back in 2012, before David Cameron decided to “cut the green crap”, including big incentives for home energy-efficiency improvements. Data from the Climate Change Committee shows that rates of insulation for cavity walls and lofts plunged in 2013 and have never recovered.
The size of the opportunity has only been underlined by current energy prices and the need to reduce reliance on imports. Here, for example, is a startling calculation by the Energy and Climate Intelligence Unit: if all homes that have energy performance certificate band D were upgraded to band C, the UK’s total gas demand would fall by 7%, and imports by 15%. In other words, greater energy conservation looks the easiest win of all in the current crisis.
One hopes the forthcoming review of energy policy will deliver something resembling a joined-up plan from the government. A VAT saving on a heat pump (sadly, still an untrusted piece of kit in the view of most consumers) is a nod in the right direction, but one cannot call it ambitious.
