Truss Vows ‘Flat-Out’ Work; Sunak Targets Poorest: UK Energy Cap

(Bloomberg) --

The UK’s energy industry regulator raised its cap on domestic energy bills, intensifying a cost-of-living crisis for millions of people and pitching many into fuel poverty. The two candidates to be the next prime minister offered differing solutions to the crisis.

Bills for households with average consumption will be capped at £3,549 ($4,189) from Oct. 1, Ofgem said. That’s 178% higher than last winter and 80% more than the current period.

Based on the new unit rates, the cost of running a cycle on a normal dishwasher will go from about 40 pence last winter to more than £1, while the cost of a tumble dryer cycle will rise from 80 pence to £2.

With benchmark European gas prices heading for their biggest weekly gain in two months, the cap -- now set once every quarter -- looks set to rise again in January. Energy prices are feeding the fastest rate of inflation in decades in the UK and beyond, prompting central banks to raise interest rates to bring the spiral under control.

Key Developments:

• Rishi Sunak promises direct financial support
• Foreign Secretary Liz Truss vows to work “flat-out” on crisis
• Uswitch says average bills will be higher than cap
• Cap could double again by April, Auxilione estimates

Sunak Calls for Extra Help to Poorest, Pensioners (10:34 a.m.)

Rishi Sunak, the underdog in the Tory leadership contest, has said he would provide “further direct financial support” to the most vulnerable Britons if he became prime minister.

On Friday, Sunak said he would “go further” to protect those households. “On top of cutting VAT off energy bills for everyone, I will provide further direct financial support to those groups of people, and I want them to have certainty that help is coming,” he said.

His plan would target those on welfare -- not limited to those on universal credit -- pensioners and those on disability benefits.

Consumer Champion Warns High Bills May Cost Lives (10:21 a.m.)

Martin Lewis, founder of consumer website MoneySavingExpert.com, warned that soaring energy bills will cause some people to have “massive mental health problems,” and the crisis may cost lives.

“Finance and mental health are so closely linked,” Lewis told the BBC. “To allow people to stare into the pit of financial doom that is coming this winter without offering them the torch at the end of the tunnel, and saying, ‘Help will come,’ without being specific is terrible for people’s mental health,” Lewis told the BBC.

Cap Could Reach £7,272 in April: Auxilione (10:07 a.m.)

Ofgem’s household price cap could rise to £7,272 ($8,578) from April 1, according to an estimate by consultancy Auxilione.

That estimate for the second quarter of next year is current as of market close on Aug. 25. By comparison, Cornwall Insight estimates a level of £6,616.

The price-cap observation window for April begins in mid-November.

Truss Vows Britons Will Get Support They Need (9:36 a.m.)

Foreign Secretary Liz Truss –- the favorite to succeed Boris Johnson as prime minister next month –- acknowledged the “grave concern” the new price cap will cause people across the UK and pledged to help.

“As prime minister, Liz would ensure people get the support needed to get through these tough times,” her campaign said in a statement. “Liz will work flat out to deliver long-term energy affordability and security, unleashing more energy by maximizing our North Sea oil and gas production -- helping keep bills down in the future.”

There was little detail in Truss’s statement on the nature of the support beyond reiterating her existing promise of immediate tax cuts and suspending green energy levies on bills –- which would only mitigate a fraction of the latest increase for pensioners and low-income households.

Businesses Need Help, Too: Labour MP (9:24 a.m.)

The government should offer businesses, which aren’t protected by the energy price cap, grants to stave off bankruptcy, said Darren Jones, Chair of UK Parliament’s Business, Energy and Industrial Strategy Committee.

“With energy prices continuing to skyrocket, the next prime minister will have to deliver significant amounts of financial support to households and businesses, similar to help offered during the Covid pandemic,” the Labour MP said.

He also urged the government to look at creating a social tariff for energy in order to lower bills for vulnerable households.

Supplier Calls for Quadruple Support for Poorest (9:20 a.m.)

The government should double its Energy Bill Support Scheme to £800 and quadruple its Warm Homes Discount for the most vulnerable to £600, said Simon Oscroft, the co-founder of So Energy Ltd., which supplies more than 300,000 households.

“This is the simplest, most targeted and crucially the quickest way to get support directly to customers before this price hike takes effect,” he said in a statement.

Demand for Solar Panels Surges (9:13 a.m.)

Demand for solar panel installation is rising as British households seek to bring down energy bills ahead of the looming cost hikes.

“The wait time is about two to three months; going back a few months ago, it was only a month,” says Jez Brinklow, owner of Alfreton Electrics. “It’s all about saving money.”

Average Bills Will Be Even Bigger: Uswitch (9:04 a.m.)

The actual cost of energy for households will be even bigger than the headline cap implies, according to Uswitch, which helps people find the best deals.

It estimates that households will face average monthly charges of £362 -- or £4,344 a year. That’s £795 more than the Ofgem cap, and Uswitch said the discrepancy comes from the cap being based on a typical house, and not an average one.

Labour Party Points to ‘Unthinkable Choices’ (8:53 a.m.)

Rachel Reeves, the MP for the opposition Labour Party who shadows the chancellor urged the government to freeze energy bills so consumers pay nothing more in the winter.

“Today’s announcement will strike fear in the heart of many families, and force many to make unthinkable choices this winter,” Reeves said. 

She pointed to Labour’s £29 billion plan to freeze bills this winter, funded in part by expanding a windfall tax on oil and gas companies.

Many Will Choose Between Heating or Eating: IPPR (8:47 a.m.)

The Institute for Public Policy Research said the government will have to deliver immediate aid to prevent people from having to choose between heating their homes and putting food on the table.

“This hike in energy prices will be devastating for many families,” said Luke Murphy, associate director for energy and climate at the IPPR. “Many people simply won’t be able to pay, and others would be forced to choose whether their families go cold or hungry.”

London Mayor Says ‘National Disaster’ Unfolding (8:35 a.m.)

A “national disaster” is unfolding with the surge in energy prices, London Mayor Sadiq Khan said.

“With energy prices soaring and more families struggling to make ends meet, this government needs to step up and take urgent action now,” Khan said. “Government has consistently failed to intervene, and ministers must act now to prevent this cost of living crisis becoming a national disaster.”

Energy Costs Rising 35 Times Faster Than Wages: TUC (8:23 a.m.)

Energy prices are now rising 35 times faster than wages and will push more people into poverty, the Trades Union Congress said.

“Nobody should have to worry about heating their homes this winter,” TUC General Secretary Frances O’Grady said. “But millions are facing bankrupting bills in the months ahead. Ministers must immediately cancel this catastrophic increase.”

Utilita Boss Bullen Warns of Fuel Poverty (8:15 a.m.)

Bill Bullen, chief executive officer of Utilita Energy Ltd., told Bloomberg Radio he believes all of his customers will now be in fuel poverty as a result of the new cap. His utility supplies 810,000 homes in the UK.

Government Package Too Little Now: IFS (8:00 a.m.)

The Institute for Fiscal Studies say the rise in the cap means the government’s previous support package, which was expected to cover three quarters of the rise in energy costs over the next year, will now only cover 47% of the rise. Covering the same proportion of the increase in bills as intended “would now cost a further £14 billion,” it said.

The IFS also has some stark figures on the size of the move, saying the jump will add almost £500 to a typical household’s energy bill between October and December.

Ofgem CEO Says More Government Action Needed (7:30 a.m.)

Jonathan Brearley says the next prime minister needs to act “urgently and decisively” to tackle the impact of the price rises.

“The response will need to match the scale of the crisis we have before us,” he said on BBC Radio. “This is beyond the capacity of the regulator and industry to address. The prime minister with his or her ministerial team will need to act urgently and decisively to address this.”

Zahawi Working on ‘Options’ for Next PM (7:09 a.m.)

UK Chancellor of the Exchequer Nadhim Zahawi said he’s “working flat out” to develop options for the next prime minister to act on energy bills.

“I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming,” he said in a statement.

He pointed to plans already announced to hand households £400 off their energy bills, deliver £650 payments to vulnerable households and give £300 for all pensioners.

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