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UK announces 80% increase in energy bills as the economy deteriorates

By Al Mayadeen English
Source: Agencies
26 Aug 2022 10:43
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Britain announced Friday a vast 80-percent hike in electricity and gas bills, in a dramatic worsening of the cost-of-living crisis before winter as the UK awaits a new leader.

EDF energy plant (EDF)

Regulator Ofgem said its energy price cap, which sets prices for consumers who are not on a fixed deal with their supplier, will in October increase to £3,549 ($4,197) per year in the UK from the current £1,971, blaming soaring wholesale costs on the war in Ukraine.

'Everybody's gonna have trouble'

Increasingly cash-strapped Britons learned how much their electricity and gas bills will rise in October, as the regulator unveils its latest energy price cap that could tip millions into fuel poverty and amid soaring international wholesale gas prices.

Gas comprises a major part of Britain's energy mix, with tens of millions of homes relying on gas-powered boilers for their heating. From January next year, average bills could top £5,000 according to some projections, as Ofgem updates the cap every three months, rather than the previous norm of twice a year.

Household and business consumers, energy suppliers, and opposition politicians are clamoring for urgent government action to avoid putting the most vulnerable in desperate situations.

"Everybody's gonna have trouble," pensioner Diane Skidmore told AFP on Thursday, as she prepared to turn off her heating and use blankets and jumpers to try to keep her rocketing bills down.

Outgoing Prime Minister Boris Johnson has vowed to leave major financial decisions to his successor, who will be announced on September 5 following a summer-long Conservative party leadership contest dominated by the cost-of-living crisis.

Foreign Secretary Liz Truss, the overwhelming favorite to beat rival Rishi Sunak, has stated that she favors tax cuts over direct "handouts".

But 72-year-old Skidmore, who lives in social housing in south London and tries to survive on monthly earnings of £600, branded the plans as "ridiculous", adding, "We need to have people pay more taxes so we can have a country functioning."

Any chance of recovery?

Britain is already suffering from its highest inflation rate since 1982 and is predicted to enter a recession later this year.

Anti-poverty think-tank The Resolution Foundation has requested "radical" measures to prevent "a catastrophe" this winter, warning of "serious physical and financial damage to families across Britain."

The foundation predicted thousands could see their energy cut off entirely with many poorer households relying on more costly pre-payment meters; "millions will be unable to pay bills and (will) build up unmanageable arrears," it added.

Christopher Dembik, head of macro analysis at Saxo Bank, said that “what Brexit has not done by itself, Brexit coupled with Covid and high inflation have succeeded in doing,” adding that “the UK economy is crushed.”

The University of York has estimated that 58% of UK households are at risk of fuel poverty by next year. Consumer prices are rising around the world as countries emerge from pandemic lockdowns and in the aftermath of the Ukraine conflict, which is exacerbating already high energy costs.

"We estimate that by 2022 our default provisions will be three times higher than in a normal year," EDF Energy's (a UK energy provider) managing director for UK customers Philippe Commaret told AFP on Thursday. "I would say that about a third of our customers are in fuel poverty and a further 20% could become so."

Despite the current government inaction, Business Secretary Kwasi Kwarteng, who is tipped to become finance minister if Truss wins power, has been holding meetings with energy suppliers, promising last week that "help is coming," without providing further details.

Former Finance Minister Sunak has criticized Truss's economic policies as "fairytales" and argued tax cuts will worsen inflation and increase the likelihood of a recession.

He has noted slashing taxes will not help those on the lowest incomes, who do not pay taxes and has instead proposed further direct support. It would supplement government help already on the way, including £400 being taken off every household's energy bill later this year.

Government stimulus relief

The leader of the main opposition Labour party, Keir Starmer, has called for a freeze in energy bills at the current cap rate and Scottish Power, one of the country's largest electricity suppliers, is also proposing a two-year freeze, which would cost a whopping £100 billion.

The plan would see the government guaranteeing loans to the energy companies, enabling them to keep bills frozen while still paying the higher prices for wholesale gas.

EDF, as well as the manager of nuclear power stations, has backed the plans for a deficit fund, which would be repaid through bills over the next 20 or so years.

Other proposals include direct payment to consumers of £1,000 or a "solidarity tax" of 1% on all earners to help pay for extra support with soaring energy bills. Calls are also mounting for more energy-saving efforts, which are being pursued in mainland Europe but have been largely absent from the public debate in the UK. Meanwhile, the Federation of Small Businesses has noted smaller firms are also suffering greatly from the crisis, and need their own targeted support.