Shadow Chancellor Rachel Reeves has sought to present Labour as more in touch with soaring energy bills across Great Britain. She should therefore announce she is scrapping the 5% VAT rate on energy bills. This is an excellent potential policy change to bring immediate and much needed relief during this continuing cost-of-living crisis. Just in time for winter heating season, households can expect their first respite from surging prices at the pump and on the electric bill. The regulator’s cap on dual-fuel bills will fall by 1% – a saving of £22. The new cap will bring the average annual bill for a typical household to around £1,733.
Despite the drop in January, bills are expected to increase once more this April. The government’s own energy policies will add an average of £75 per year to bills by this coming spring. As a direct result we can expect an increasing annual energy price cap. It is rising this autumn by £75 and is expected to reach a record high by April. This surge is largely driven by the costs associated with extending Britain’s gas and electricity distribution networks.
The regulator had opted for a smaller than expected cut to the cap because of falling wholesale gas prices. This reduction is a welcome reprieve for consumers. As experts point out, this decrease needs to be taken in the context of a larger picture. Craig Lowrey, principal consultant at Cornwall Insight, said it was a complicated picture when it came to efforts to control energy costs.
“While adjustments to subsidies or VAT may make a dent in bills, the government doesn’t have full control over many of the underlying non-wholesale costs.” – Craig Lowrey
January’s price cap reduction may seem like a good start on the surface, but it’s a false promise. Lowrey went on to stress that bills are still much higher than pre-crisis levels and set to go up again in April.
“January’s price cap dip might look like good news, but it’s only part of the picture. Bills are still well above pre-crisis levels and are set to climb again in April, and this time, it’s not higher wholesale prices driving the rise.” – Craig Lowrey
This change in the energy bill shows how much pressure there is from rising non-energy costs. Each of these significantly heightens the risk that policy decisions in favor of renewable investments will lead to bad decisions.
“The real pressure is coming from rising non-energy costs, with levies and policy decisions associated with that investment in renewables driving up bills.” – Craig Lowrey
No wonder people like our own Jess Ralston are such strong proponents for an upgraded power grid. This simple upgrade would help the UK make better use of their own renewable energy resources. This transition could help reduce reliance on foreign gas imports and mitigate the impact of international price fluctuations that have historically affected household bills.