Kate and Willow
Kate is seventy three. She’s a retired teacher and lives alone in Eardisland, fifteen miles south of Ludlow. Willow is a working mother of two in Nottingham. These two women don’t know each other but they have one thing in common. They are both, through no fault of their own, sinking into the quagmire of the UK’s energy supply crisis.
Kate has a fixed tariff with EDF. Her monthly direct debit is reviewed and adjusted at the end of every year. At the New Year it rose from £113 per month to £396, an increase of 350%. Kate’s monthly income from her pensions is £1300 pounds. Her new energy bill immediately wipes out 30% of that. She thinks this extortionate rise may have occurred on the back of some wrongly-estimated bills. Her gas meter was damaged by flooding and has not been replaced while the electricity meter readings she submitted seem to have been ignored. Despite her best efforts, communicating with EDF has so far been frustrating and unfruitful.
Willow is with United Utilities. Or rather, she was with United Utilities. Throughout 2021, she was paying them £90 per month, until September when they went bust. Only then did she discover that, somehow, she owed £495 in arrears. She was moved to EDF and, since the beginning of the year, has paid a total of £745 in bills and arrears. Willow’s net salary is just over a thousand pounds a month. In the last two months, she has spent 37% of her entire income on energy.
An unholy mess
The price of wholesale gas has risen stratospherically since last autumn and – unlike other countries – the UK has very little gas stored to use as a back-up. Plus, of course, we no longer benefit from the bulk-bargaining power of the EU trading block. Companies have hiked the cost of the energy they supply to us but it’s not quite that simple. The crisis has revealed our ‘competitive’ energy supply market as an unholy mess.
Since the deregulation of the UK market in the 1990s, energy supply companies have proliferated. As well as the Big Six, there are – were – dozens of smaller companies. Thirty of these have gone bust in the last twelve months and millions of people have been automatically assigned to another supplier.
The result is a chaos that inevitably hits the customer harder than anyone else. Suppliers are not only charging their captive new customers more for fuel but frequent errors exacerbate an already-bad situation. Inadequate IT systems, faulty meters and mismatched accounts result in wrongly-served, sky-high bills and threats of the bailiff.
What about the price cap?
Surely that protects us from extravagant increases? Well, yes and no. It is not your total bill that is capped but the cost of each unit of fuel. Today, a unit of gas can cost no more than 4p while a unit of electricity is capped at 20p. If you use more units, your bill goes up. If, like Kate, your estimated readings are overhyped, your bill goes up.
In April, the price cap will rise by a staggering 54% – gas will be capped at 7p a unit and electricity at 28p. The average energy bill is already set to go up by nearly £700 this year and that may just be the beginning. Ofgem reviews the cap every six months.
And anyway, the price cap doesn’t apply if you are on a fixed tariff with your supplier. It will be interesting to see what sort of rates are going to be offered in the coming months.
Kate and Willow (who, let’s not forget, have already spent a third of their income on fuel this year) ain’t seen nothing yet.
Kate is well aware that there may be trouble ahead:
“I’m not as badly off as many, I am lucky. I think of OAPs who have nothing but their state pensions and I get furious. I know how worried and upset I feel – and I have something of a financial cushion to ease the pain somewhat.”
What a guy!
So what is the Chancellor doing to protect both customers and the people who work in this increasingly precarious industry?
He could work with the suppliers and put together a portfolio of measures to protect jobs, industries and customers. But he’s a small state kind of guy, so he hasn’t done that.
He could tax the oil and gas companies. Both Shell and BP have just recorded ‘momentous’ profits. A windfall tax – as is being suggested by the Shadow Chancellor – could smooth away most of this year’s price increase. But he’s a low tax kind of guy, so he hasn’t done that.
Perhaps he could remove VAT from fuel. According to the Prime Minister, the ability to control our own rates of VAT is a Brexit benefit. Despite being a low tax kind of guy, Sunak hasn’t done that.
What he has done is grudgingly lend everyone a bit of cash. We will all receive a credit of £200 on our bill in October but – get this – we will all have £40 extra put back on our bill for the next five years.
Many people are unimpressed with the idea of having an unwanted loan forced upon them. Neither does the idea seem terribly joined-up. How about the young adults who will leave home and start paying their own bills in the next year or two? They will cop for the enforced £40 yearly repayment, despite never having received the £200 credit. What happens if the price of gas stays high and Ofgem raises the price cap again next year?
“I don’t want this bogus ‘discount’, nor does anyone I have spoken to. I just want the government to govern properly and tax these big windfalls so that our rates stay reasonable. But they are determined to make us, hard-working, ordinary people pay instead.”
Trickle over economics
Meanwhile, over in France, the rise in the price cap has been limited to 4%. Energy secretary Kwasi Kwarteng says this is bad as it had an adverse affect on EDF’s share price. It’s good to know where his priorities lie.
EDF probably isn’t too worried. The company is largely owned by the French state and all the profits that it makes over here in the UK will trickle back over the Channel anyway.