Energy bills: why household finances and business certainty will still suffer under Jeremy Hunt’s extended plan
Published: November 21, 2022
Preparing for a cold winter. Jelena Stanojkovic / Shutterstock
Among the grim news in Jeremy Hunt’s recent autumn statement was an attempt to square the circle on energy bills. Funding for the Energy Price Guarantee that aims to limit household energy prices will continue throughout the 2023-24 financial year. But the level of support available after this winter will be significantly lower.
An increase in the energy price cap means that the annual average household bill will rise from £2,500 to £3,000 per year. This is still around £700 a year less than households would pay from next April under the older price cap arrangements, according to research firm Cornwall Insight.
When the additional government payment for this winter of £400 per household is taken into account, this means that average energy bills will rise by £900 in 2023-24. This represents a tripling of average bills compared to just two years ago. The autumn statement has promised extra support for those receiving benefits and pensions, but this energy bill rise will be a further financial blow to many households – especially those with low or average incomes, and particularly those just above the threshold for receiving benefits.
The costs to government (and the taxpayer) of the cap for 2023-24 should fall significantly. The government estimates that it will spend £14 billion less as a result: partly due to the higher cap, and partly due to an expected fall in gas prices. But as the Office for Budget Responsibility points out, the costs for next year could be much higher than the government expects if gas prices go back up to August 2022 levels. Such a rebound could mean the government has to further limit the amount of support available and the types of households covered by its energy bill support scheme.
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The outlook for business
For businesses, the announcement brings even less certainty. The current Energy Bill Relief Scheme for non-domestic customers ends next March, and will be reviewed before the end of this year. The government was clear in its autumn statement that, even if support is extended, the amount available will be “significantly lower”. While that is understandable given the £18 billion cost of the current scheme over six months, this may put many businesses in a very difficult position next year.
Read more: Energy price freezes and business support are sticking plasters – here's how to protect UK families and companies from future crises
It has been argued that support for bills is not a sustainable, long-term solution to this energy crisis. Many believe a decisive shift away from fossil fuels, as well as energy market reforms and a more ambitious approach to energy efficiency are also required. Now that the government is spending so much money on energy subsidies, it has a direct interest in improving the energy efficiency of the UK’s poorly insulated homes. This would reduce bills and government spending, improve energy security and reduce emissions.
Boosting energy efficiency
The autumn statement offers mixed signals on energy efficiency, and lacks the urgency required to properly address this issue. Expected spending in this parliamentary session of £6.6 billion will still be much less than the £9.2 billion pledged in the 2019 Conservative manifesto. An extra £6 billion has been promised in Hunt’s statement, but this funding will only be available after the next election. Although it is welcome, this extra money will not bring down bills during the next three winters.
In the short term, a new task force will be formed to “deliver energy efficiency across the economy”, and to meet a new target of a 15% reduction in energy demand by 2030. The target will only apply to energy use in buildings and industry, and therefore excludes the energy we use for cars, buses and other forms of transport.
It is useful to put this target into context. Energy demand in the UK peaked in the early 2000s. During the last decade – a period that includes the impacts of COVID-19 – overall demand fell by 7%, with industry energy use falling slightly more than that for households.
The new target will require more rapid reductions in demand in a shorter period of time. It also means that the new task force and the government will need to overcome a decade of policy failure in this area. Energy efficiency policies were having a significant impact on homes until 2012. Since then, high profile policy initiatives like the Green Deal have not delivered.
The current Energy Company Obligation, which funds suppliers to improve energy efficiency in low income, fuel poor and vulnerable households, is welcome. But it needs to be scaled up and complemented by incentives for households that are not in fuel poverty. Without this increase in ambition, many households will remain vulnerable to high prices for years to come.
Professor of Energy Policy and Director of the Institute of Sustainable Resources, UCL
Disclosure statement
Jim Watson receives research funding from UK Research and Innovation and the Foreign, Commonwealth and Development Office (FCDO)
Autumn Statement averts deeper recession but fails to solve fundamental UK growth problem, say CBI chief
- OBR forecast reveals autumn statement made no change to UK potential growth, with only rise in labour supply from immigration preventing this from worsening
- Tightening fiscal and monetary policy means the UK needs new answers to avoid a dormant economic decade
On the back of a sobering Autumn Statement last week, the CBI is arguing that while a deeper recession was averted, more needs to be done to improve the long-term growth potential of the UK.
Tony Danker, CBI Director-General, will argue that while fiscal credibility looks to have been restored, there are three imperatives to get the economy growing:
Government must now become the great unlocker of private investment; Government must change economic rules to overcome political barriers and businesses must show even greater ingenuity than during Covid.
In the opening speech of the CBI Annual Conference 2022 in Birmingham – sponsored by Accenture and Hays – Tony will also highlight the very real grounds for optimism for our economic future, outlining the many reasons why firms should be looking to invest in UK plc.
Addressing the Conference in the opening plenary on Monday, Tony Danker, CBI Director-General, will say:
“We come together, once more in extraordinary times. Britain is in the middle of stagflation – hit with rocketing inflation and negative growth – for the first time many can remember. We know how to fight inflation. We know how to fight recession. But we don’t really know how to fight them together.
“The predictable reaction is to choose which ‘evil’ is worst. But that just leads to different kinds of problem. Ignore inflation to get growth going and we’ve seen what happens. Immediate trauma. Ignore growth to get inflation down? Prolonged pain. I reject the idea that you have to choose. I say you daren’t choose.
“Aggressively getting inflation down is the right thing to do, especially after the market response to the mini budget. Market stability is a precondition to growth. And I pay tribute to the Prime Minister and Chancellor for taking the tough choices needed to achieve that.
“But what about growth? The painful reality about growth is that it can’t be stimulated overnight. That’s what the mini budget got wrong. Across the board tax cuts. Immediate demand stimulus. Relying on the old British strength − consumption − at the expense of the perennial British weakness − investment − has given growth a bad name.
“But growth is good. Growth is a precondition to a stable society. Without growth the NHS gets worse not better. People’s lives get worse not better. And we lack the resources we need to transform ourselves to a zero-carbon world.
“Yet Britain’s had 15 years of low growth and flatlining productivity. We can’t afford a repeat.
“To the Chancellor’s credit, he knows the importance of growth. And last week he made incredibly welcome announcements. First, on business rates relief – something we’ve been campaigning on repeatedly. And he’s staying the course on vital infrastructure, such as Sizewell C, HS2, East-West Rail and Northern Powerhouse Rail.
“But even with these, the OBR’s forecast has concluded that the Statement will not alter Britain’s trend growth of 1.7%. Trend growth is a statement of our true growth rate, without the variations of inflation. And not only has the OBR not changed its assessment of our trend growth since March, lower forecasts for investment and productivity are dragging this down. The only thing holding it up is higher hours worked, due to higher immigration.
“People are arguing against immigration but it’s the only thing that’s increased the potential growth of our economy since March.
“Remember that GDP is a simple multiplier of two things – people and their productivity. And it’s time to be honest: we don’t have the people we need nor do we have the productivity.
Identifying three imperatives to get the economy growing, Tony will say:
1. “We need government to be the “great unlocker of private sector investment”. You, Government, are the market mover. You direct the flow of traffic. The tax incentives you set determine where business invests. The risks you underwrite actually create new markets. If we have less public money to invest, then we need a Treasury obsessed with stimulating private sector investment.
“…The first choice is about the principles of business taxation. When Rishi told me he was announcing the super-deduction alongside the increase in corporation tax, the principle was clear. If you choose as a firm to invest less and make a bigger profit today, that is your choice. But you’ll pay more tax. If you choose to invest more in your long-term future, and that of the UK – you’ll pay less.
“Corporation tax rates will jump 6 points overnight in April – but now without the incentives – yet that principle should be staying the same. CBI analysis shows that a permanent full allowances regime alongside that jump – would unlock an extra £50bn in capital investment per year by the end of the decade. The Government should have taken this path.
“The second choice is government using its balance sheet to crowd in private sector investment. Not government picking winners, but government making markets.
“Take UK Offshore Wind. Private sector ingenuity, skills and money built the industry. But it took government to put in place the right finance models, like Contracts for Difference, and the right investment bodies – to help make this a highly investable market. And we can do it again – in hydrogen and Sustainable Aviation Fuel.
“This is the power of Government as market mover: Seeing the market. Sharing the risk. Creating investible propositions.
2. “Government must “change economic rules” to overcome political barriers.
You decide what we regulate and what we don’t. You decide the skills we import or don’t. You decide where we build or where we don’t. You decide who we trade with and who we don’t. Today those rules don’t work for growth. You relied on fiscal firepower to avoid those tough choices. They can’t be avoided any longer.
“…Our politicians make anti-growth choices every day in pursuit of other political goals. I respect that. But when we confront stagflation and its massive impact on the cost of living, it’s time to kick the tyres on those choices. There are four barriers to growth today borne of political choices.
“First is immigration. Let’s be honest with people. Our labour shortages are vast. First, we have lost hundreds of thousands of people to economic inactivity post Covid. And anyone who thinks they’ll all be back any day now – with the NHS under the pressure it is – is kidding themselves. Secondly, we don’t have enough Brits to go round for the vacancies that exist, and there’s a skills mismatch in any case. And third, believing automation can step in to do the job in most cases is unrealistic.
“So, let’s be practical. Let’s have economic migration in areas where we aren’t going to get the people and skills at home anytime soon. In return, let’s make those visas fixed term. At the same time, let’s double down on incentives for technology and automation. And let’s agree a skills policy that works to fill these roles from the UK in the medium term. A shortage occupation list that not only goes to the Minister for Immigration. It also goes to the Secretary of State for Education. And a business sector who take on the mantel alongside them in our training budgets.
“Second is regulation. I know that some Conservative politicians today feel that this issue is the fault of Europe. But the biggest regulatory barriers facing businesses today are based on British laws, created by a British parliament, and administered by British regulators. And the regulatory regime today is gold plated and bureaucratic. It is not outcomes based – it’s rules based. It’s not proportionate – it winds us all up in an overzealous process of enforcement. And too many regulators still think that growth and investment is someone else’s responsibility.
“Third is planning. The UK planning system should be a key economic enabler – helping us to get the essential infrastructure and major projects required. And yet in Britain today, planning is broken – slow, fragmented, rife with local politics. That has to change.
“Then, finally, we have trade. Right now, our trade as a percentage of GDP is the lowest in the G7. Boris Johnson achieved a deal with the EU that allows us to continue to trade tariff- and quota-free with our biggest trading partner. There’s some good stuff in there. Currently locked up.
“But still, we argue over the Northern Ireland Protocol. Still, we argue over sovereignty. Get round the table; do the deal; unlock the TCA. I say to Brexiteers, the best guarantor of Brexit is an economy that grows. Its biggest risk is one that doesn’t.
“Now I know that some of these things will not be popular with politicians. But while, I have no problem with Government taking tough choices to bring stability, I want them to also take tough choices for growth.
3. “Businesses must show even greater ingenuity.
You here in this room. Entrepreneurs, business owners, growing businesses, multinationals. In the past two years you have shown more resilience, imagination, bravery and agility than ever. The bad news is you can’t take a break. Greater business ingenuity has to become the new normal for UK plc.
“…Let me tell you why you should invest. UK plc. has not begun to realise the £700 billion in prizes we identified for 2030 in our landmark economic vision published last year – Seize the Moment.
“Take decarbonisation, where the UK can be a winner in the global race to net zero. We can be market leaders in green tech and clean energy – and a global centre for sustainable finance.
“In innovation, the UK can push our lead in science and technology. Win increased global share for UK Fintech and leverage our domestic AI expertise.
“On trade, there’s much untapped export revenue to be won by pressing the UK’s advantage in high-priority, high-growth, country-sector combinations. In our regions and nations, we can win global share by playing to distinctive, competitive strengths. We think the path to this is clusters – something I see the Chancellor wants to get behind.
“On workforce, we are all embarking on turbocharged talent strategies – across recruitment, retention and training. And in health, employers are a new frontline in physical and mental wellbeing, and we have the potential to grow our life sciences and wellness sectors massively.
“This is the growth potential of Britain. Six prizes, still very much in our reach. Last year we saw it in the statistics. This year we’ve seen it in your stories. There is much to play for.”
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