Closing summary: Uncertain future for UK energy system after price cap cut
The average cost of an annual household energy bill in Great Britain has dropped below £2,000 for the first time in 18 months, but that average masks the fact that some people – and particularly the poorest – will see the amount they pay for energy rise compared to last winter.
Everybody acknowledges the price cap system is broken. Chris Hayes, a senior analyst at Common Wealth, a left-of-centre thinktank, said:
The Ofgem price cap regulates the selection of deckchairs on offer to the passengers of the Titanic. Its original purposes was to prevent retailers from exploiting consumer inertia by companies stealthily raising their default tariffs.
Today it simply caps how much of the pain from elevated wholesale prices retailers can pass onto consumers versus energy suppliers absorbing the shock themselves. Meanwhile, the wholesale energy market is governed by catastrophic dysfunction — not least by electricity prices being set by the price of gas. This system needlessly copy-pastes the soaring prices in the 40% of our electricity mix coming from gas, onto the remaining 60%. This will plunge us back into crisis the next time gas prices spike.
But what will replace the price cap – and when – is totally unclear, as the Guardian’s Alex Lawson writes.
Even the energy regulator presiding over the cap, Ofgem’s Jonathan Brearley, has admitted the mechanism is “very broad and crude” and has called on ministers to implement a “more rigorous framework” to protect consumers. But the next step looks far from simple and the government does not appear to be giving the problem much thought.
The cap, originally introduced to prevent loyal customers who did not switch supplier from paying more, appears to be the wrong tool for today’s crisis. As energy prices increased, it held prices down, and was blamed for sending 29 suppliers bust, leaving consumers with a £2.7bn tab. At the same time, it is set too high to help the estimated 6m households who simply cannot afford to properly heat their homes.
It is rare to have debt campaigners and thinktanks associated with the Tory right singing from the same hymn sheet, but they have found common cause in calling for social tariffs: subsidised tariffs for households who cannot afford to pay the full whack.
But that comes with political problems as well. You can read Alex’s full analysis here:
In other business and economics news today:
The UK and India hope to be able to complete a free trade agreement as soon as this year, according to India’s finance minister.
Union leaders have called for Wilko’s 12,500 employees to be prioritised, after a deal that could have rescued jobs at the ailing budget chain was rejected because its debt holders could recoup more from a break-up of the business.
A “significant minority” of landlords and letting agents may not be following consumer protection rules, according to the UK’s competition watchdog, which raised concerns including complaints about onerous guarantees, discrimination against certain types of tenants and fees charged to older people entering retirement housing.
Farmers in England are being left without crucial nature recovery payments and unsure of what to plant after delays to a post-Brexit scheme.
Germany’s economy may be heading for the third quarterly contraction in 12 months after weak economic sentiment data.
You can continue to follow the Guardian’s live coverage from around the world:
In our coverage of the Russian war on Ukraine, the Kremlin says it is an “absolute lie” it was behind plane crash and refuses to confirm Prigozhin’s death
In the US, Donald Trump is defiant after surrendering on election interference charges
In the UK, Tory frustration with Nadine Dorries grows as a former party whip calls for clarity
Thank you for following our live coverage of business, economics and financial markets this week. Please do join us bright and early on Tuesday (after the UK’s bank holiday) for more. JJ
Wilko rescue deal rejected, with unions calling for jobs to be prioritised
Union leaders have called for Wilko’s 12,500 employees to be prioritised, after a deal that could have rescued jobs at the ailing budget chain was rejected because its debt holders could recoup more from a break-up of the business.
Doug Putman, the Canadian entrepreneur who rescued HMV from administration in 2019 and returned it to profit, is understood to have been attempting to take on at least 200 of the group’s 400 outlets and continue operating them under the Wilko brand, saving jobs and helping keep orders flowing for suppliers.
Sources said that Putman had been in talks with Wilko’s administrators at PwC for at least two weeks but his offer could not match the cash raised from liquidating the chain’s assets, including its leaseholds and stock. Wilko’s biggest creditor is restructuring specialist Hilco, which loaned the company £40m shortly before it went bust.
