The Energy Price Guarantee will be reviewed in April next year, what are the options for the government?
The current system where everyone gets a guaranteed price per unit is relatively straightforward to administer within the existing systems and functions of the energy market. Despite the money going to many people who can afford higher bills, the need to act quickly won the argument above the cost.
Clearly the first option is to just extend the scheme. The challenge that this brings is the blank cheque nature of the commitment – it relies on government filling the gap between wholesale prices and the £2500 per household average commitment. This could cost £100m per year, and in the current spirit of monetary frugality it’s clear why the chancellor has put an earlier end date on the scheme.
There have been many calls to make this support more targeted.
One option would be to use the benefits system – increasing Universal Credit would be an option, this may need to rise by £200 per month to cover the energy guarantee for those on benefits. The fear would be that this becomes a permanent rise as no one would want to be the chancellor seen to be cutting benefits just before a 2024 general election. This would also leave many in the squeezed middle without support, limiting their spending power and decreasing economic growth.
What about the council tax system, perhaps all homes in bands A-D could get a rebate? There are at least two challenges to this scheme: The tax bandings were done years ago and we already know that there are many anomalies, and secondly how does this help the pensioner who lives in a large house that is expensive to heat.
The pensioners’ winter fuel allowance for pensioners is another option, those on fixed incomes have a low ability to respond to increasing prices. By increasing the allowance, the government could reach a large community of voters very quickly. The fact that many pensioners have no need for the allowance would need to be ignored, as it is today.
We should also consider the seasonal nature of bills, it’s no accident that the scheme is planned to stop in April, which is a ‘shoulder’ month, where usage drops from winter highs to summer lows. Usage can be half during the summer compared to the winter. An option is to make the scheme a winter fuel scheme, where the support price is lower in the summer than winter.
A more fundamental shift could be a move to tiered energy tariffs. Households would pay a lower price for the first number of units consumed to a certain level and then a higher price for exceeding this level. This method of pricing used to be common, until it was stopped, but circumstances have changed.
Regardless of the options chosen, we need cross industry engagement and support to design and implement the replacement scheme. We see the need for an Energy Task Force to address this issue.
