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Cost of living: How can the UK government help reduce energy bills?

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UK electricity and gas price spiked this spring after correction Ofgem modify it energy price limit.

The limit, which dictates the maximum amount a utility company can charge an average UK customer per year, has risen dramatically by 54 per cent from £1,277 to £1,971.

That means an increase of £693 per year for the average customer.

Worse news, the regulator’s chief executive Jonathan Brearley has since told the House of Commons Business, Energy and Industrial Strategy Committee that he is hoping the cap will rise again in October. , which sets a ceiling “in the region of £2,800”.

In response to the escalating world wholesale gas prices, due to increased demand and decreased imports into Europe, the review conducted on 1 April 2022 is likely to cause 22 million households to react. and are unable to meet their commitments.

Prime minister Rishi Sunak has so far announced that the £150 tax break will be given to homes in range A to D and also plans £200 discount on invoices.

A government-backed loan scheme on that order would cost around £5 billion to £6 billion, far less than the £20 billion demanded by the energy industry, which has been heavily criticized in recent years. notification.

Dale Vince, the boss of Ecotricity, calls the measures “too little, too late”.

Cost of Living: How to get help

The cost of living crisis has touched every corner of the UK, pushing families to the brink with soaring food and fuel prices.

  • The Independent asked the experts to explain the small ways you can stretch your money, including debt management and free items.
  • If you need access to a food bank, find your local council’s website using gov.uk and then use your local government’s website to locate your nearest centre. Trussell Trustwhich runs many food banks, has a similar tool.
  • Advice for citizens provide free help to those in need. The organization can help you find grants or benefits, or advise on rent, debt, and budgeting.
  • If you are experiencing feelings of distress and isolation, or are struggling to cope, The Samaritans will support; you can speak to someone for free by phone, on 116 123 (UK and ROI), email jo@samaritans.org or visit the Samaritans website to find details of a nearest branch your most.

Responding in the Commons, Labour .’s shadow chancellor Rachel Reeves similarly called Mr. Sunak’s plan a “buy now pay later plan to increase the cost of tomorrow”.

The Prime Minister is now ready to announce billions of pounds of further help to those who were previously struggling express reluctanceonly to have his hand forced by the deepening crisis.

How much are energy bills going up?

As of April 1, households currently on standard variable rates have seen their bills skyrocket by 54 per cent to £1,971.

For around 4 million prepaid metering customers, that increased by £708 from £1,309 to £2,017.

The newly announced limit is calculated by Ofgem using a formula based on market prices and expected costs for suppliers.

As Mr. Brearley pointed out, it could rebound sharply in October.

What if I don’t use the standard variable tariff?

Those shopping around and moving away from the previous standard variable tariffs can find deals hundreds of pounds cheaper than the energy price cap.

All of those transactions have now been withdrawn as the cost of energy supply has increased.

When the fixed term deals expire, the client is moved to the standard variable rate at the price cap.

The option to shop around is still available, but other deals will be more expensive, so existing customers are advised not to switch.

What alternatives have been suggested?

Wind tax on energy companies

The Labor Party is pushing the government to put one-time tax about North Sea oil and gas producers, who are among the beneficiaries of this year’s big price hikes.

According to Labor estimates, the tax could raise £1.2 billion to the Treasury, which could be used to help people struggling with rising costs of living, although that figure only a fraction of the extra costs Britons will have to bear this year.

The Prime Minister was cold to the idea but, according to Timeis now seeking to levy a much broader tax on energy generators, including wind farm operators, who have benefited from high prices.


UK Energytrade body for suppliers, has previously called for a cut in VAT on household bills from 5% to zero.

Businesses pay 20% VAT on their energy bills, and the government offers a 5% tax rate for companies that use a limited amount of electricity. Businesses are not protected by energy price caps.

But in last October’s budget, Mr. Sunak resisted calls to cut energy taxes. Whitehall officials said at the time that the cuts would be poorly targeted, meant to help those who can afford it as well as those who will be struggling.

Green fee

Suppliers are also demanding that taxes that fund renewable energy investments and improve energy efficiency be removed from bills. Instead, the investment will be paid out from general taxation.

They argue that this will be more progressive because people with higher incomes will contribute proportionally more. A tax is a tax levied on essential goods that accounts for a significant portion of what low-income households pay.

Meanwhile, E.On’s chief executive, Michael Lewis, called for a “pay the polluter” approach, which would include increasing taxes on carbon to make up for the lost money. take from tax on the bills.

Suppliers estimate that eliminating green taxes and cutting VAT to zero could reduce bills by £250 to £300 on average.

Cost difference

Energy UK is also proposing an industry-wide funding scheme to allow suppliers to offset costs caused by spikes in gas prices and supplier failures over several years.

Currently, the price cap mechanism means that all of these costs will hit people’s bills next year.

Under the plan, lenders will provide funds to cover the immediate upfront costs of the energy purchase, with the funds being repaid over a longer period. The government will not guarantee the loans but will monitor the program to ensure it is not abused.

Government funding

E.On also called for a “more radical” approach and suggested that the government use public funds to lower the price of bills in the short term.

It could mean, for example, that the government puts some or all of the cost increases on its balance sheet, allowing these sudden price spikes to be repaid and mitigated. immediate burden on consumers.

Dan Alchin, Energy UK’s deputy retail manager, pointed out that other governments have provided direct support.

In Ireland, for example, households have promised a €100 (£84) reduction on their first energy bill by 2022, and in Italy the government has provided loan facilities to suppliers. grant.

“Right now, there is nothing to discuss. We need the UK government to get involved in the industry and find a way through this to help customers,” said Mr Alchin.

“They didn’t respond as quickly as Treasurys in other countries.”

Why are energy bills rising so much?

Gas imports to Europe have been lower due to global economic recoveryThis has boosted demand in Asia.

Prolonged cold spells last winter and into the spring have resulted in lower-than-normal gas inventories across Europe.

The UK imports about half of its gas and relies more on it to heat homes than many European countries, which mainly use electric heating.

Continued low imports and the need for additional gas storage sites for next winter boosted gas demand and sent gas futures prices continuing to rise.

Russia also accused of restricting gas supplies to Europe to exert political pressure on the EU.

Before it invades Ukraine on February 24, the Kremlin had expected the EU to approve the opening of Nord Stream 2, its new natural gas pipeline that runs under the Baltic Sea and into Germany, although that has since since blocked as a punishment for its aggression against a neighboring country.

Countries that were formerly dependent on Russian energy imports have meanwhile been forced to look for alternative sources such as Vladimir Putin found himself presiding over a pariah state.

Meanwhile, wholesale electricity prices have also been pushed up by higher gas prices and rising carbon allowance prices.

Consumers will have to cover additional costs stemming from failed suppliers, some of which have been unable to avoid exposure to fluctuating gas prices by purchasing enough energy in advance.

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I am passionate about journalism and using new technology to spread news. I am also interested in politics and economics, and I am always looking for ways to make a difference in the world. I am the CEO of Janaseva News, and I am 24 years old.

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