Proposals backed by Chancellor Nadhim Zahawi could help households save money this winter
Chancellor Nadhim Zahawi has reportedly asked Treasury officials to put together a multibillion-pound aid package that could lower the price cap from January.
Mr Zahawi believes reducing the cap could be the most effective way to help consumers save money as forecasts currently predict annual energy bills will cost households more than £4,000 from next year.
It would change how Ofgem determines the level at which the cap should be set, removing an allowance that suppliers can charge consumers. Instead, those costs would be met through financing facilitated by the Treasury and the Bank of England, it said The Sunday Times.
The program would not come into effect before the price cap increase in October, but could be rolled out by early 2023.
Proposals for Liz Truss or Rishi Sunak are reportedly being worked on to potentially announce when either of them will become the new prime minister on September 5th.
Although there is no guarantee that any of the candidates will continue the measure, each has announced their own plans to ease the household cost-of-living crisis.
Meanwhile, ScottishPower chief executive Keith Anderson has proposed freezing bills at their current level of £1,971 for two years.
Suppliers would then cover the gap between this and the wholesale price by borrowing from a “deficit fund” backed by commercial banks, with the amounts being repaid over 10 to 15 years.
The repayment costs would then be passed on to consumers in bills or transferred to general taxation over the same period.
Mr Anderson previously proposed the idea in April but was rejected by former Chancellor Mr Sunak, who instead opted for a £15billion intervention mostly focused on direct payments to households.
How much should the upper price limit rise?
The cost of the average household’s annual energy bill could reach nearly £5,300 from April if current sky-high wholesale gas and electricity prices don’t fall soon, according to the latest figures.
In a new forecast, energy consultancy Auxilione predicted the price cap on energy bills could reach £3,628 in October, up from £1,971 today. It could then rebound to £4,538 in January and peak at £5,277 in April.
The figure given for the price cap is based on the consumption of an average household. Those using more than average will have to pay more, and those using less will face lower bills.
It is based on the price utilities pay to buy energy, which they then resell to households. Energy regulator Ofgem monitors this price in the months before it has to change the price cap, which happens four times a year – in October, January, April and July.
Most of the October price cap observation window has now expired, leaving forecasters confident that their predictions will not be far off when Ofgem announces the cap on August 26th.
Forecasts for January and beyond are more uncertain as these observation windows have not yet started, but it gives a good indication of where the cap could be set if prices don’t change significantly from today.
Fluctuations in wholesale prices could add or remove hundreds – if not thousands – of pounds from the final figure.