Embattled households face being tied into fixed price energy tariffs costing up to £4,000 a year amid ‘untenable’ proposed hikes to the price cap this spring.
Prime Minister Boris Johnson is set to announce new measures to help consumers lumped with surging energy bills within the next few weeks, and is reportedly taking part in meetings on the crisis this week.
On Monday, Mr Johnson said ministers understood the difficulties people were facing, and assured that the Government is ‘certainly looking at what we can do’.
An annual fixed deal energy tariff for a typical household now costs nearly £2,500, according to recent data from comparison website Uswitch.com.
Costly: Embattled energy customers face being tied into fixed price tariffs costing up to £4,000 a year
This average annual fixed deal £2,500 price tag is £500 more a year than the £2,000 level that energy regulator Ofgem is expected to hike the cap on variable tariffs to in April.
Ovo Energy, the UK’s second biggest energy supplier, is currently offering a fixed-rate deal worth just under £4,200, according to Uswitch.
Martin Young, an energy analyst at Investec, told The Telegraph the figure was ‘staggering’, but he believes energy prices will stay elevated or rise even further over the course of this year.
He said: ‘Between the end of November through to the last week, fixed price deals have jumped up.
‘If you now get to a situation where even well-hedged suppliers are facing these kinds of problems then clearly the price cap itself has structural problems.’
In recent months, the energy price cap has lagged behind surging gas prices, generally shielding consumers from huge price hikes but forcing suppliers to sell energy at a loss.
It is expected to rise from £1,277 to £2,000 in the spring, but if fixed deals remain more expensive, and households opt to stay on variable tariffs covered by the cap, suppliers could be put under ever increasing financial pressure.
Mr Young told The Telegraph: ‘If you now get to a situation where even well-hedged suppliers are facing these kinds of problems then clearly the price cap itself has structural problems.’
Jobs lost? Unite union has today issued a warning over the potential for mass looming job cuts within the energy sector
He said that because the cap is updated every six months, it is ‘for all intents and purposes a six-month fixed deal.’
As a result, Mr Young believes suppliers could be left in the lurch if they buy energy in advance for variable tariff customers only for them to leave when cheaper fixed deals become available.
In a bid to boost financial performance in the sector, Ofgem is set to attempt stress testing on energy suppliers after the recent wave of bankruptcies.
But, Richard Neudegg, head of regulation at Uswitch, thinks this is too little, too late and more needs to be done to assist consumers and address the price cap.
Mr Neudegg said: ‘Introducing financial stress testing after 26 energy providers have exited the market feels like the very definition of shutting the stable door after the horses have bolted.
‘Financial testing should have been used to identify the suppliers that were ill-equipped to handle the shocks that have rocked the market. While necessary for the future, these proposals are clearly too late to help the current crisis.
‘Ofgem’s priority must now be to build a resilient market that can stand strong in the face of any future shocks.’
He added: ‘The way the price cap works has also been a major factor in the current energy crisis.
‘It is currently delaying the pass-through of the full shock to the system for consumers, but the regulator cannot prevent this coming in April.’
The Resolution Foundation think-tank has warned of a ‘cost of living catastrophe’ with household expenditure poised to rise by £1,200 a year, with about half of that being added to energy bills, and the remainder a result of other costs including inflation and tax squeezes.
Last month, business secretary Kwasi Kwarteng is understood to have met individually with energy bosses from the UK’s biggest energy suppliers about twice each in the week running up to Christmas.
Some Conservative MPs want cuts to green levies and VAT to help bring bills down. Labour, which also wants VAT suspended, is also demanding higher taxes on oil and gas producers.
Mass job cuts in the sector looming?
Unite union has also today issued a warning over the potential for mass looming job cuts within the energy sector.
The union estimates that in the next six months some leading energy firms are contemplating drastic job cuts combined with additional wage cuts and attacks on terms and conditions, like pension payments.
Sharon Graham, Unite general secretary, said: ‘Our intelligence suggests that if the government does not intervene in the energy crisis then tens of thousands of jobs could go before the summer.
‘We know of one energy provider that is due to announce job cuts in its workforce of 20 per cent. And there are many more lining up behind them.’
She added: ‘Just how long is the government going to be a spectator in this coming jobs crisis? We need the government to intervene with a support programme to save jobs for the industry, and we need it now. We refuse to let workers carry the can for a crisis which is not of their making.’