I thought it would be worth explaining the numbers behind the Energy Price Cap and what I think should be done.
The October cap number reported by the BBC of £3549 is made up of 2,900 KWH of Electricity at 52p per KWH and 12,000 KWH of gas at 15p per KWH. This gives a total of £3308, plus VAT at 5% is £3472 - almost the same as the BBC number.
What can be done - this is a pretty simple equation, so there are only a few options.
1. Give people money - already being done, £400 this autumn, probably more to follow.
2. Reduce unit charges - but if revenue less than costs for energy retailers they will go out of business, so the government would need to prop them up.
3. Reduce demand - many consumers will limit their own use, but as energy is essential there are limits to what people can realistically do.
4. Remove VAT - which would save £250.
My view is that we need to do most of all of the above. Plus rapid help in...
1. Additional help for those in greatest need - those on universal credit, in receipt of child benefit, registered disabled. The £400 is not means tested, future payouts should be more targeted.
2. Specific action on prepayment meters, this is a system in need of overhaul, particularly action on tariffs and payment mechanisms.
3. Tiered tariffs - so that your first 2,900 of electricity and 12,000 of gas are at a lower rate, and anything above this is more expensive. Perhaps this needs to be linked to council tax banding to reflect house sizes?
4. Emergency funding for those who need an additional safety net - one off payments
Longer term solutions include
1. Better insulated and more efficient homes
2. Greater energy independence through renewables and nuclear
3. Electrification of the economy to reduce reliance on fossil fuels.
Would really appreciate others' thoughts on this.
