Household energy bills in Britain are predicted to peak at more than £4,400 a year next spring, as ministers draw up “worst-case” plans for a bleak winter that could involve gas shortages and power blackouts.
The prospect of soaring energy bills exacerbating the cost of living crisis highlights the scale of the problems facing Britain’s next prime minister — either foreign secretary Liz Truss or former chancellor Rishi Sunak.
Sunak, who has promised more support for families with their energy bills, on Tuesday repeated his claims that Truss is not prepared to do enough to ease the pain facing poor households.
Truss insisted she was prepared to do more to help, but said rapid tax cuts were the best way forward. “What I don’t believe in is taxing people to the highest level in 70 years and then giving them their own money back,” she said, referring Sunak’s tax rises as chancellor and his plans for cuts in the medium term.
Meanwhile Kwasi Kwarteng, business secretary, has drawn up contingency plans — including the possibility of four days of emergency measures in January to conserve gas — in response to risks posed by extreme energy market disruption as Russia squeezes supplies to mainland Europe.
While Kwarteng’s central case is that Britain’s gas and electricity supplies will be sufficient to meet demand this winter, he has modelled for “extreme” outcomes, such as severe weather taking out Norwegian and French energy imports.
“Responsible governments prepare for extreme scenarios, however unlikely they may be,” said the business department. Bloomberg first reported the government’s latest “worst-case scenario” planning, which includes several days of organised blackouts for industry and households to conserve gas.
Ed Miliband, shadow climate change secretary, said: “Whilst the Tories squabble over tax cuts, Britain is now readying itself for catastrophic power cuts this winter.” He blamed a failure by ministers to prepare and invest in the country’s energy supplies.
Meanwhile the consultancy Cornwall Insight on Tuesday sharply raised its forecasts for Britain’s energy price cap.
Cornwall, which is among the most accurate forecasters of British household energy bills, predicted the cap could rise from £1,971 a year on average at present to £3,582 in October — an increase of more than 80 per cent. The cap would then rise to £4,266 in January, before peaking at £4,427 in April, said Cornwall.
The cap covers the vast majority of Britain’s households — about 24mn out of an estimated 27.8mn. October’s cap level is due to be announced by Ofgem, the energy regulator, on August 26.
Cornwall’s latest forecasts heaped pressure on Truss and Sunak to offer more support to households this winter.
Sunak on Monday pledged additional support, but suggested he could not provide details until after Ofgem outlined the next revision to the energy price cap. Truss has said she favours tax cuts over “handouts”.
The Liberal Democrats have called for the next rise in the energy price cap not to be passed on to households — with the difference with the existing level to be funded by an increase in the government’s windfall tax on oil and gas producers. Oil and gas groups including BP and Shell have been reporting bumper profits from high energy prices.
Cornwall sharply revised its estimates for the price cap higher following methodological changes announced by Ofgem last week that allow energy providers to recover the full costs of buying supplies for their customers for the coming winter at current high wholesale prices.
Ofgem insisted it had to make changes to the cap to avoid another slew of energy company collapses. Since January 2021, more than 30 energy retailers have gone bust.
The regulator said in response to the Cornwall numbers that “the wholesale market continues to move extremely quickly so no forecast for next year is at all robust”.
Adam Bell, a consultant at Stonehaven and former head of energy strategy at the business department, said: “The harsh reality is that there’s no short-term fix that can make these costs go away.
“The next prime minister effectively needs to decide how best to spread them across the economy, be that moving them into taxation or leaving households more directly exposed.”