Support on energy bills is outdated and needs to change, MPs warn

The support was based on old predictions that energy bills would not be as high in October as projections currently show.

25 July 2022

The Government needs to immediately change its out-of-date energy bill support for households, MPs have said, as they accused energy regulator Ofgem of being “negligent”.

The influential select committee that deals with energy said that a massive insulation drive needs to be launched “urgently” and would permanently bring down bills.

MPs also asked ministers to consider abandoning the energy price cap in favour of a discounted social tariff for the most vulnerable.

They said that there were problems with the support that former chancellor Rishi Sunak had promised to bill payers, including multiple payments for second home owners.

But first and foremost it has simply been left behind by rising energy prices.

Rishi Sunak
Problems highlighted among former chancellor Rishi Sunak’s measures include multiple payments for people with a second home (Danny Lawson/PA)

When Mr Sunak announced the help, the energy price cap was forecast to rise to around £2,800 in October. Now the latest forecasts set the next price cap at £3,244.

“Once again, the energy crisis is racing ahead of the Government,” said Darren Jones, the chair of the Business, Energy and Industrial Strategy committee.

“To prevent millions from dropping into unmanageable debt it’s imperative that the support package is updated and implemented before October, when the squeeze will become a full-on throttling of household finances and further tip the economy towards recession.”

The committee has been hearing from experts, ministers and industry insiders for months.

“We were told by a number of witnesses, ‘if you think things are bad now, you’ve not seen anything yet’,” Mr Jones said.

“This winter is going to be extremely difficult for family finances and it’s therefore critical that public funds are better targeted to those who need it the most.”

Earlier this year, Mr Sunak – who was then chancellor and is now running to be Prime Minister – announced a support package that was broadly welcomed by the industry.

It gave £400 energy bill discounts to all households, £650 to another eight million low-income households, £150 for those on disability benefits and £300 for pensioners.

But since then things have moved on, with new predictions of even more misery to come.

The committee also warned of the £94 that will be added to bills because 30 energy suppliers have failed in a little over a year.

It accused Ofgem, the regulator, of “incompetence over many years” which allowed poorly run and backed companies to start energy companies.

These were likely to fail when the going got tough – as it did when gas prices soared last year.

When a supplier fails some of the cost of dealing with its collapse is spread across all households in Great Britain.

“Ofgem failed to use its existing powers and didn’t bring action against energy suppliers even when it was clear that they should have done,” the committee said.

It added: “Negligent energy regulator Ofgem enabled now bankrupt energy firms and inexperienced CEOs to increase energy bills further.”

Ofgem said the massive gas price spike “would have resulted in market exits under almost any regulatory system”, but admitted its previous regime was “not robust enough” and this contributed to some suppliers failing.

“No regulator can, or should, guarantee companies will not fail in a competitive market, but we are working hard to reform the entire market as well as closely scrutinising and holding individual energy suppliers to account, to further strengthen the regulatory regime,” it said.

The Department for Business, Energy and Industrial Strategy (Beis) said: “No national government can control global inflationary pressures; however, we have introduced an extraordinary package of support to help households.”

MPs also concluded that while the Government can step in with support now as gas bills soar, in the long run it needs to reduce the demand for energy.

Britain has the worst insulated homes in Europe, and a major upgrade programme can not only reduce energy bills, it can also help the country reach its climate change targets.

A fully funded national campaign to insulate homes “street by street, community by community” is needed, the committee said.

The Government should abandon its practice of announcing short-term policies, it added.

Mr Jones said: “Ultimately, ministers know that the long-term solution is to reduce our need for energy through insulation works that keep our homes warm in winter and cool in summer.

“If the Government is really taking this energy crisis and the country’s net zero targets seriously it will come forward with a bold, fully funded, national home insulation programme before the end of the year.”

Beis said: “We are also investing £6.6 billion this parliament to improve the energy efficiency of homes, delivering savings of £300 a year on average.”

Finally, the report also said that ministers need to consider whether they should scrap the price cap on energy bills.

This could be replaced by discounted energy bills for the most vulnerable and rules that cap the difference between a supplier’s cheapest and most expensive deal to help everyone else.

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