11/25/22, 11:14 PM Energy sub­sidies could cost gov­ern­ment £5bn a month

Energy sub­sidies could cost gov­ern­ment £5bn a

month

The Guardian · 25 Nov 2022 · 37 · Alex Lawson Energy cor­res­pond­ent

The cost to the gov­ern­ment of shield­ing house­holds from soar­ing energy bills
is expec­ted to double in the new year to up to £5bn a month, as min­is­ters pre­-
pare to push the but­ton on a pub­lic inform­a­tion cam­paign to reduce usage.

The rising costs come as the Treas­ury seeks to soften the blow of high bills,
after the energy reg­u­lator, Ofgem, announced an increase to its price cap.
In response to the energy crisis, min­is­ters are plan­ning to launch a £25m
advert­ising and social media cam­paign before Christ­mas to encour­age people
to save money and energy.
They have iden­ti­fied eight meas­ures that could save house­holds up to £420 a
year, accord­ing to the Times. The meas­ures to cut bills include redu­cing the
tem­per­at­ure of boil­ers, which could save £80, turn­ing off radi­at­ors in empty
rooms, which could save £105, and switch­ing off elec­trical devices rather than
leav­ing them on standby, which could save £55.
Ofgem said yes­ter­day its price cap would reach the equi­val­ent of £4,279 a year
for the aver­age house­hold from Janu­ary. It said the cap, which is adjus­ted every
quarter, would increase by an aver­age of £730 for the three months from the
start of next year. However, the gov­ern­ment’s energy price guar­an­tee (EPG)
lim­its the typ­ical annual bill in Great Bri­tain to £2,500 in the same period.

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11/25/22, 11:14 PM Energy sub­sidies could cost gov­ern­ment £5bn a month

Although the import­ance of the Ofgem price cap for house­holds is reduced by
the EPG, it still mat­ters because the cost of the Treas­ury sub­sidy on bills is
linked to the dif­fer­ence between the two. The gov­ern­ment provides energy
sup­pli­ers with the dif­fer­ence between the unit rate under the EPG and what
they would have charged their cus­tom­ers were it not in place – a rate set by the
Ofgem cap.
The new cap will force the Treas­ury to pay 33p per unit of elec­tri­city and nearly
7p per unit of gas that house­holds use. The energy con­sultancy Aux­ilione said
this would push up the cost of run­ning the EPG from £7.8bn in the last three
months of 2022 to £15.1bn in the first three months of next year.
The energy sup­plier Ovo estim­ates the gov­ern­ment will pay about 33p every
time someone uses their oven for half an hour or an elec­tric shower for six
minutes.
The chan­cel­lor, Jeremy Hunt, said in last week’s autumn state­ment that the
EPG would be lif­ted to £3,000 for a typ­ical house­hold from April, which should
reduce the amount the Treas­ury must pay in sub­sidy.
Aver­age house­hold bills were lim­ited to £1,277 a year ago, under Ofgem’s price
cap. That had been due to rise to £3,549 from Octo­ber.
However, the then prime min­is­ter, Liz Truss, inter­vened to intro­duce the EPG
for two years. Hunt later trun­cated this to six months, then exten­ded it by 12
months from April.
Truss had blocked a pub­lic inform­a­tion cam­paign on how to cut down on
energy use, arguing it could be seen as “nan­ny­ing” Bri­tons. Michael Gove, the
lev­el­ling up sec­ret­ary, yes­ter­day said the cam­paign would not be “nan­ny­ing or
pat­ron­ising”.
Other meas­ures to cut bills that are expec­ted to be part of the cam­paign include
turn­ing off the heat­ing when going out, which could save £105 a year, and
switch­ing baths for showers, which could save £20.
The con­sultancy Corn­wall Insight has pre­dicted the EPG will cost the gov­ern­-
ment £42bn in its entirety, rep­res­ent­ing about £2.3bn a month. Investec
estim­ates the policy will cost £24bn, or an aver­age of £4bn a month, for the
first six months.
Fore­casts of the cost are highly depend­ent on the whole­sale price of gas, which
has been volat­ile.

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