It has been clear since at least last autumn that, come April, soaring global energy prices would crash at high speed into the ability of millions of British households to pay their heating bills. Acknowledging this as “the number one issue on people’s minds”, Rishi Sunak went to the Commons on Thursday and unveiled a raft of measures designed to limit the inevitable but still widely underestimated damage.
Conservative MPs praised the chancellor’s package. Opposition MPs condemned it as not going far enough. But the larger truth, two months before consumers start to experience the impact of Thursday’s dramatic rise in the energy price cap, is that, while the issue may be on people’s minds, the real human and political shock from these price rises will start in April.
When it comes, and despite the chancellor’s measures, that impact will be very great for very many. Mr Sunak described it in his evening press conference as drawing the sting – but stings can leave serious wounds. It may also last longer than the Treasury hopes. Even as things stand, the figures are eye-watering. Rocketing world prices in late 2021 will result in the biggest hit to the cost of living for the majority of British households in at least a quarter of a century.
On Thursday, the energy regulator, Ofgem, confirmed that the average bill will rise from £1,277 now to £1,971 after 1 April, a hike of 54%. Four-fifths of that is the result of the rise in wholesale prices, up by 104%. Britain’s dependence on gas, which heats 85% of our often poorly insulated homes, makes this country a sitting duck.
With national insurance rises also due to take effect at the same time, inflation moving steadily upwards again (the Bank of England raised interest rates while the chancellor was on his feet) and prices continuing to outdistance wages (partly because of energy costs), Mr Sunak will be praying for warm spring weather to take the chill off the bills.
The chancellor’s measures will undoubtedly absorb some of the shock. All domestic customers will receive a £200 government-financed discount from October, but they will then pay it back in five annual instalments. English households in the lowest four council tax bands – some 80% of the total – will also get a £150 rebate. Local authorities will get discretionary funding to help them target other vulnerable and low-income households. The devolved nations will receive equivalent support under the Barnett formula.
None of this can disguise that most households will still be hit extremely hard from April. Energy prices are high even now, and record numbers are already facing unacceptable choices between heating, eating and other forms of household expenditure. All this is before any of the new price increases kick in. The chancellor’s measures may help, but things will still get worse not better for most. Shell’s announcement of quadrupled profits on Thursday makes Mr Sunak’s talk of the government taking action to share the burden seem insulting.
Mr Sunak’s measures are also fragile. The Treasury is gambling that global wholesale gas prices will start coming down next year. Looking at the graph of wholesale prices, many will see the thinking. But analysts are already predicting that the price cap will have to be raised again after the next half-yearly review. That will mean even higher prices for consumers (along with, presumably, fresh and costly Treasury mitigations) just as the weather turns colder again.
The most important aspect of the energy price rises will be their human effect on the poorest and least well-off. They have not been adequately supported. But don’t forget the politics of this too. Some of Mr Johnson’s MPs have put him on probation until the May local elections. The combined effect of energy price hikes, higher taxes and continuing inflation means that, for him, April may indeed be the cruellest month.
