The junking of Trussonomics was almost absolute. Even the energy price guarantee, the one policy the sinking prime minister had tried to trumpet in her short and painful press conference at the end of last week, is being canned. The guarantee for households will now expire next April, to be replaced by, well, new chancellor Jeremy Hunt didn’t say. There will be a Treasury-led review to design a cheaper scheme that ensures “enough support for those in need”.
The broad thinking behind Hunt’s new approach should not be contentious. The principle is correct. It never made economic sense to freeze energy prices for everyone, higher-earners and millionaires included – or, at least not for two years. Labour, remember, only backed a universal freeze for six months, probably sensing the danger in a “blank cheque” approach when nobody can be confident of where gas prices will stand in the winter of 2023-24.
The catch-all nature of Liz Truss’s guarantee is why projections of the cost went as high as £140bn under consultancy Cornwall Insight’s “extreme scenario” for gas prices. And the untargeted design rightly received a rebuke from the International Monetary Fund, even if its criticisms of the unfunded tax cuts generated 10 times as much attention.
The Treasury’s definition of “those in need” is, obviously, now the critical issue. Existing support schemes don’t get remotely close to capturing those in fuel poverty if, come next April, average annual household bills could be £4,500-plus on an uncapped basis. The warm home discount, for instance, is received by only 2.26 million out of 29m households. The same applies to using universal credit: it doesn’t cover enough of the population.
There are many suggestions around. A sliding-scale system of tariffs could be one of the simplest to implement: the first £2,000-worth, say, of consumption would be at discounted rate, with prices rising thereafter. Something on those lines might fit Hunt’s nod to incentivising energy efficiency; large and leaky homes would pay more, in effect. The model is imperfect and would need to be refined to cover special cases, but it is one possible place to start. It could be more practical than trying to devise an ultra-targeted scheme from scratch.
But, whatever the government decides, it cannot let the uncertainty run. On day one, Hunt’s unfiltered message is only that a lot of people will be paying more for their energy next year than they had expected at the weekend. The impact on consumer confidence could be immediate, particularly among middle earners who could fall either side of a cut-off line in a means-tested package.
At a minimum, Hunt should aim to offer clarity within weeks. The retail energy suppliers also need to know what to expect. Having just adjusted their systems for Truss’s price guarantee, they will have to conduct another round of re-programming – and the next one is likely to be more fiddly. Hunt’s search for “stability” will feel destabilising from where they sit.
The disgrace is that the time to start work on an affordable and fair energy support package was February, when it became obvious that then chancellor Rishi Sunak’s initial baby-step measures were not going to be enough. Instead, we had a long summer of a Tory leadership campaign in which the winner vowed “no handouts” and then implemented an enormous and universal package on taking office because no preparations had been made. The technocratic incompetence has been unforgivable.
Chris Hill gets the perfect send-off from aggrieved investors
Farewell Chris Hill, who, at the age of 51, will retire next year as chief executive of Hargreaves Lansdown. And, with perfect timing, along comes news of a multimillion-pound lawsuit against the investment platform brought on behalf of 3,200 investors in Neil Woodford’s failed Equity Income fund – a fund where Hargreaves, in the eyes of many, allowed itself to become cheerleader-in-chief, to the point of maintaining a “best buy” recommendation until the shutters went down.
If this lawsuit dogs Hill’s last months in the job, it would be deserved. His “apology” to customers in June 2019 for the Woodford debacle made it impossible to tell what, precisely, the apology was meant to cover. It read more like a general expression of sympathy.
Here is the relevant passage again: “I would like to apologise personally to all clients who have been affected by the recent problems with the Woodford Equity Income Fund. We all share their disappointment and frustration.” If Hill was taking dictation from Hargreaves’ lawyers, we now know why.
