Is the Big Squeeze set to become the Big Freeze?

Ofgem today announced the price cap will rise by £693 in England, Scotland and Wales, an increase of 54 per cent. This means bills for the average customer will rise to £1,971, up from its previous limit of £1,277.

This is just one factor in the soaring cost of living. Food prices are rapidly increasing. National Insurance is due to be hiked. Borrowers, including some mortgage holders, will feel the impact of the 0.5% hike in interest rates announced by the Bank of England today. Council taxes are due to rise in many areas, though lessened by a one off reduction of £150 to ease the burden of the surge in energy prices.

Those on pre-payment meters, who are often the most insecure in their finances and housing, will typically see their annual bills rise by £708 from £1,309 to £2,017. around £14 a week.

Even for relatively wealthier households, the loss of an average £13 a week to the energy companies will suck money out of the local economy.

The big fear is that households already skimping on heating will begin to sit in the cold affecting their health and wellbeing. The Big Squeeze could become the Big Freeze.

No household is looking forward to 1 April 2022. Except perhaps those wanting to oust Conservatives from their seats at the May local elections. Lib Dems will be out knocking on doors across the country making the case that the Conservative’s policies on energy, social care and health – to name just three – are failing big time.

We have seen some relief measures announced by Rishi Sunak today. There will be a £200 discount to many customers, which is really a loan, to be repaid. There will be a one off reduction of council tax of £150 in April for households in Bands A-D. Perhaps that is the simplest way of giving out a handout but it also smacks of an eye towards the May local elections when rises in council tax will inevitably be issues on the doorstep.

This is not the end of what for many people will be a nightmare, perhaps a continuing nightmare. Ofcom is to announce a consultation tomorrow that will give greater weight to wholesale energy prices in the energy price cap. It also wants to increase the price cap every three months, not every six months.

By next winter, as the Big Squeeze bites, too many households and vulnerable people could be sitting in the Big Freeze.

* Andy Boddington is a Lib Dem councillor in Shropshire. He blogs at andybodders.co.uk. He is Thursday editor of Lib Dem Voice.

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31 Comments

  • Not announced yet but there are indications that standing charges are going up from circa £185 to £320, which will hammer low users even more than the increase of kwh rates. The decrease in council tax needs to be continued and increased in future years. Standing charges on energy need to go to encourage low energy use yet Ofgem are determined to increase them for their own reasons, which need to be looked into.

  • Lorenzo Cherin 3rd Feb '22 - 5:06pm

    This govt cannot make us sure they are right wing or left wing.

    Be smallish govt and lets see cuts to waste.

    Be rather big govt and lets see a reduction of waste and a significant boost in spending for so many poor or struggling .

    This chancellor, as with the prime minister, is trying to please everyone, and actually pleases no one.

    Awful . We need JFK meets FDR.

    We get Herbert Hoover meets Donald Trump!

  • Graham Jeffs 3rd Feb '22 - 5:24pm

    If interest rate increases are supposed to choke off demand that creates inflation, how does that reconcile with all these other squeezes on disposable income?

  • Shell shares jumped 1.4% following a jump in profits…

    Who knew, all those years ago, the real meaning of that ‘catchy’ advert?

    All together now, “I’m going well, I going shell!”

  • This price increase is going to be horrific for so many families and vulnerable people.

    How is someone on Basic ESA @ £74.70 a week or £3884.40 possibly going to afford the now average cost to fuel a 1 bedroom property of £1212 a year? that’s a 1/3 of their benefit going on fuel
    Many disabled and elderly people have higher heating and electric costs through having to spend more time in the home than the average family.

    I just switched my own provider today and was shocked that the daily standing charge leapt from 8p a day to 40p a day, that’s an increase from 56p a week to £2.80 week in charges before they even turn the lights on or boil the kettle, how are households who already struggle to put £10 a week on the top meter, going to cope when over a 1/4 of that goes on a standing charge??

    There was a report out today that the Government were forced to release kicking and screaming by the work and pensions committee https://committees.parliament.uk/publications/8745/documents/88599/default/ that looked into the difficulties and extra expenses faced by disabled people and the use of their disability benefits, and that research was conducted well before all these latest rises to living costs.

    More, much more needs to be done. We can not have companies making Billions in profits for shareholders whilst our most vulnerable sections of society starve or freeze, this is not acceptable

  • Brad Barrows 3rd Feb '22 - 6:13pm

    The government could reduce energy costs at a stroke by making it zero rated for VAT. Even 5% of £2000 is £100

  • Chris Moore 3rd Feb '22 - 6:23pm

    The private sector is motivated by profit.

    Why bother if you aren’t allowed to profit? Only allowed to make losses? Everyone would give up from shopkeepers to behemoths.

    And where is the money going to come from to invest in capital expenditure on infrastructure or in the case of Shell on exploration?

    Handing all economic activity over to the state has always been disastrous.

  • Phil Beesley 3rd Feb '22 - 6:35pm

    I struggle with this debate. Isn’t it just the case that poor people do not have enough money and that they cannot always choose how to spend it?

    Over the years I’ve followed debates here about school meals, sanitary protection, whatever. It seems that poor people need more money which they can choose to spend in order to manage their lives.

  • @Chris Moore

    “Handing all economic activity over to the state has always been disastrous.”

    I find a country where over 2 .5 Million of its people have to rely on food banks as being pretty disastrous.

    I find a country, where a mother skips meals in order to feed her kids being disastrous.

    I find a country where someone with mental health would be choosing between sitting in the dark, eating a hot meal or watching a TV pretty disastrous.

    With inflation about to hit 7% already, soaring energy prices are going to force retailers and manufacturers to push up prices even further, we are on a very slippery slope which should be keeping us all awake at night before we start expressing concerns for shareholders and profits.

  • Brad Burrows – The same point about making energy zero rated for VAT was made in PMQs on yesterday but Boris blew it away as a possibility. On the short clip I saw no-one came back to make the point that cutting it was one of the claimed benefits of “Taking back control”. That could have been fun.

  • Elect s/c has more than doubled, gas not so much, means low energy users will be hit by a much bigger percentage rise – not very green in lack of encouragement for low users and even solar pv installations will make less sense. Is there such a thing as a gas generator to make cheap electricity at home?

    LibDem can gain some impetus by going for low fixed costs, no s/c’s, phase out council tax and TV licence

  • Chris Moore 4th Feb '22 - 12:21am

    @Matt: do you believe all economic activity should be handed over to the state?

    I am not a communist, because of the appalling economic (and political) record of communist states.

    The best way to deal with poverty is to have a mixed economy with a very generous welfare state which redistributes wealth. That is what I’m in favour of.

    Stopping private economic activity is no solution.

  • Nonconformistradical 4th Feb '22 - 7:26am

    @Chris Moore
    “The best way to deal with poverty is to have a mixed economy with a very generous welfare state which redistributes wealth.”

    Which is very far from what we have at present. We have an economy where a relatively small number of powerful people and organisations can all too easily exploit the poor for their own ends.

    We have an economy where shareholders and their profits seem always to take precedence over everything else. Where the rich get richer and the poor get poorer (trickle-down economics which doesn’t seem to work – the poor are left to starve while waiting for it to work).

    Since in your post at 12:21 am you make a point about not being a communist – you give me the impression that you view communism and the present grossly inadequately regulated free market system which allows rampant exploitation of the poor as the only two alternatives.

    So what would you do – quickly – to redress the situation and enable the poor to put food on the table, roof over head and be able to afford to heat their home?

  • Steve Trevethan 4th Feb '22 - 8:49am

    Might we be informed of any changes in power production costs causing energy price rises?
    Might “levelling up” be applied food and heating? 30% of our children are starving. (See Children’s Society)
    If néolibéral economics is a “good thing”, why is “levelling up” necessary?

  • Chris Moore 3rd Feb ’22 – 6:23pm….The private sector is motivated by profit.Why bother if you aren’t allowed to profit? Only allowed to make losses? Everyone would give up from shopkeepers to behemoths.And where is the money going to come from to invest in capital expenditure on infrastructure or in the case of Shell on exploration?Handing all economic activity over to the state has always been disastrous………

    Regarding your first sentence it seems, that in the UK, “The private sector is ONLY motivated by profit” .And, when it fails (as in the case of banks/rail/construction) it’s directors keep the money and the state ‘picks up the tab’…
    Thatcher’s privatisation of council homes has the state paying toward the exorbitant rents charged by the ‘buy to let’ landlords who took advantage of your favoured ‘private ownership’…Companies who pay low wages (and make large profits) have a workforce subsidised by the state..etc., etc.

    Make up your mind? Your mixed economy (which as Nonconformistradical says isn’t the UK model) seems to pick and choose…It’s hardly private “enterprise” when, as in the case of the energy companies, those who took advantage of the deregulation and paid ‘bosses’ whopping salaries/bonuses can just ‘wave goodbye’ and walk away from their customers..

  • Jenny Barnes 4th Feb '22 - 11:03am

    Seems to me that what we have here is an energy transition problem that has been appallingly mismanaged over the last 30 years or so. Climate change forces a move away from fossil fuels – assuming humans want to continue on the only planet that presently supports human life. All that’s been done is to switch from coal to gas, and a lot of blah blah blah. We need to move to denser, more potent energy sources, and that means nuclear. I know there are difficulties with the waste and costs of building, but to keep the lights on when we have a 2 week anticyclonic gloom with no sun and wind can’t be done with current renewable tech. We need probably about a dozen 3 GW nuclear power plants asap. Private sector won’t provide that in any sensible way, so the government needs to build, own and run them – British Nuclear Electricity. If the government can afford to waste £40 Bn on Test & Trace, they can spend what’s needed on this. It could even help with “levelling up” if they were built in the right place. Taking gas fired backup electricity production completely out of the mix allows electricity prices to be freed from dependency on the gas market & supplies.

    Last time the goverment messed up an energy transition was the 3 day week and the coal strikes of blessed memory.

  • Lorenzo Cherin 4th Feb '22 - 11:56am

    Chris

    I agree but not on energy or utilities, it doesn’t have to be like that.

    Nothing particularly radical, much very practical, about having a state energy company run as a service. It could be a public private partnership. But it must be in recepit of massive subsidies and not have profit at the basis of its practice.

    Matt

    Eloquent, compassionate. It is an outrage how low benefits are. Mainly the conservatives fault. But many Labour councills are not as generous as they could be. I know one that spends much on marketing and not enough on housing benefits!

    Nobody in the Conservative govt has any understanding of poverty. They think money grows on trees, it does, for their cronies!

  • Neil James Sandison 4th Feb '22 - 12:01pm

    Jenny Barns is partly right diversification from fossil fuels is the only way we are going to get energy security and get off fossil fuel addiction There are many fuels we have yet to tap into successfully be it , Hydrogen ,Tidal and Water networks , Anaerobic Digestion ,Sewage and other waste products but the infrastructure and business incentives to create circular economies with these natural resources is woefully underfunded yet the turn around from capital investment to economic return is so much shorter than nuclear as we saw with solar and other renewables .

  • The French government has limited the energy rise due in April to 4%. The firm says this will cost it €8bn this year. But Mr Le Maire is unrepentant, saying EDF is a public service and must act in the public interest “to protect the French”.

    Still who needs a ‘public service’ when we can write off, without any comeback, £4.3b for Covid ‘help’ stolen by private businesses and almost £10b in wasted PPE ‘supplied’ by their private friends..
    The £40b largely wasted on a useless ‘track and trace’ could have funded an energy price freeze for the least well off for much of the next decade..

  • Barry Lofty 4th Feb '22 - 1:02pm

    expats: If we did not know already what an incompetent, self serving government we are unfortunate enough to have in place at the moment, the present energy crisis is just another reminder of our misfortune.

  • Jenny Barnes 4th Feb '22 - 3:19pm

    Hydrogen is not a fuel, it’s an energy carrier. It’s like saying the grid is a fuel.
    All the others mentioned are fine, but they are insufficiently energy dense. A big windmill, for example is 10 MW ( peak) So you need 300 to make 3GW (peak). However typical delivery over a year is 25% of peak, so you would need 1,200 – enough for 12 GW peak. Coincidentally, the UK has installed 12 GW of wind power to date, so equivalent, in a way, to one 3GW nuke. Similar energy density considerations apply to the other fuels you mention. So, yes, renewables are good, but continuous power is essential.
    Other possibilities would include large solar installations in hot sunny places like Morocco or Spain with HVDC cables to transmit the power, moving heavy electrical usage like aluminium smelting, green steel, hydrogen production to the Mediterranean coast ofr Middle East ( or central Australia!)…

  • Consumers are going to be hard hit but so are energy-intensive industries where power can be 1/3 or more of their costs. If prices don’t come down very soon many will close, possibly forever.

    Last autumn the government bailed out fertiliser maker CF Industries to preserve the CO2 by-product needed for food production; they just renewed that deal. Newsnight yesterday briefly covered two small businesses and the ceramics industry in Stoke (starts at 19:25). A little research suggests that many firms (not all!) still have supply under long term contracts but those will start expiring soon and then things will hit the fan. The implications for jobs, and not just in ceramics, are unspeakably bad.

    https://www.bbc.co.uk/iplayer/episode/m0014483/newsnight-03022022

    In particular, fertiliser costs have gone stratospheric, especially nitrogen (because highly energy intensive) and potash (because the US has sanctioned Belarus which produces 20% of world supply. Doh!).

    Word is that many farmers can’t pay the higher prices demanded which will cause a big drop in food production this year and corresponding spike in food prices. Government could perhaps subsidise one or two smaller intensive users, but in total this is on a scale far beyond its ability to subsidise.

    Parliamentarians need to be holding the government to account for all this, exposing their utter incompetence and highlighting the implications. It’s the lowest of low hanging fruit.

  • Barry Lofty 4th Feb '22 - 3:44pm

    Gordon: As you say it is the here and now that has very worrying implications!

  • The media point to a World-wide rise in gas prices and blame the surge in energy prices on a resurgence of demand as the world emerges from Covid. That’s probably a factor, but it’s mainly a side effect of US sanctions on the Nord Stream 2 (NS2) pipeline under the Baltic to Germany in which Russia has invested $11 billion.

    Russia is meticulously honouring all existing contracts via the older pipelines (which are gradually expiring) but refuses to write new contracts except for supply via NS2. Presumably this gives (a) a better netback at the border, (b) a return on its $11bn pipeline, (c) it stops subsidising hostile Ukraine. All very reasonable IMO.

    We get little gas from Russia but for others (eg Germany) it’s crucial, so they are scouring the world for supplies deliverable by LNG tanker. That mainly means outbidding supplies previously destined to East Asia, so their prices rise too. A global crisis but made in Europe by the US.

    I suggest several takeaways:
    1. Putin, like him or loathe him, is a master strategist and has already ‘won’ this although the penny hasn’t dropped in London or Washington yet.
    2. Start NS2 and gas prices will soon return to (nearer) normal.
    3. In the meantime, US energy companies are making a killing selling LNG to Europe.
    4. The US is degenerating into a oligarch-dominated failed state so Europe will aim to move out of the US orbit. The UK???

  • @Jenny – “Other possibilities would include large solar installations in hot sunny places like Morocco or Spain with HVDC cables to transmit the power”
    Unfortunately, back to the energy density conundrum: we (globally) consume more energy than we can currently gather from sunlight… We need nuclear: initially uranium but longer-term thorium (fusion needs to make massive leaps from being a net consumer of energy to being a massive net producer).

    @Gordon – Don’t disagree with your analysis, other than to note that US sanctions around NS2 are probably more about its desire to control European economies than improving the lot of european consumers.

    I wonder if the UK are negotiating any long-term (20+ year) energy supply contracts…

  • Jenny Barnes 5th Feb '22 - 9:29am

    When I suggest “large” solar installations I mean many square kilometres.

  • @Jenny – they need to be thousands of square kilometers ie. in space.

  • Jenny Barnes 6th Feb '22 - 9:17am

    Area of Morocco is 446 thousand sq km.

  • Nonconformistradical 6th Feb '22 - 9:44am

    @Jenny Barnes
    “Area of Morocco is 446 thousand sq km.”

    How much of that would actually be useable for solar engery farms? Given much of Morocco is quite mountainous – have you looked at a relief map of the country?

    People do actually live in the flat and other lower-lying areas.

  • Jenny Barnes 6th Feb '22 - 2:35pm

    My recommendation was 12 3GW nukes. You don’t like the renewable alternative? Knock yourself out.

  • @Jenny – it seems based on the chinese experience on the Tibetan Plateau, its circa 27 sq km’s (10 sq miles) for 850 megawatts. However this is naturally only fully productive for a fraction of the day, so to provide the equivalent of a base load power station, would need to be replicated around the world to become 4 x 27 sq km’s.
    Given the UKs current installed electric generation capacity is circa 75.8 GW that works out to roughly (75.8/.85) x 27 = 2,403 sq km x 4…

    Naturally, this excludes non-electric energy consumption ie. gas and petrol. Given the typical household uses by calorific value 4~5x as much gas as electricity….

    Hence why we need to massively downsize our energy usage, which will require highly disruptive restructuring of our society and economy.

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