Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Should the government help with energy bills? – Full Analysis.
With oil and gas prices soaring and supply severely disrupted by conflict in the Middle East, households fear a corresponding spike in their energy bills and calls are coming for the government to act.
Keir Starmer today outlined government measures to “bear down on costs”. The prime minister pointed to Ofgem’s new energy price cap, which amounts to a 7% decrease in energy bills, as well as increases to minimum wages. Starmer also pointed to the £1 billion-a-year Crisis and Resilience Fund that will help vulnerable households with heating oil prices. But the best way to bring down costs for families is to reopen the Strait of Hormuz, Starmer stressed. That means “pushing for de-escalation in the Middle East”.
The price cap resets at the end of June – and according to forecasts, the next is set to increase by 18%. The Conservatives have called on the government to remove VAT from household energy bills for the next three years, while the Green Party said ministers should increase the tax on energy firms’ profits. Reform UK’s Robert Jenrick accused Rachel Reeves of “acting like a bystander” and not the chancellor.
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“The prime minister seems to be suffering from a dangerous degree of complacency in the face of the mounting energy crisis,” said The Independent in an editorial. While other countries’ governments implement measures to conserve energy and support families, such as Australia making some public transport free and Ireland cutting fuel duty, Starmer “has merely urged the British people to ‘act as normal’”. The government is “silent” on any plans it might have to “ameliorate prospectively crippling gas and electricity bills later in the year”.
The soaring price of fuel oil and petrol is playing out against “stagnating living standards” and a “succession of tax rises on work and employment”, more of which kick in this month.
Charities say this month’s increases to council tax, water, broadband and mobile phone tariffs are also “threatening to stretch many households to breaking point”, said the Press Association.
Businesses aren’t protected by the price cap, either. They’re set for “painful increases in their gas and electricity tariffs” as the situation in the Middle East “sends wholesale prices soaring”. Electricity costs have already increased by between 10% and 30% since the conflict began, while gas prices have soared by between 25% and 80%, according to energy analyst Cornwall Insight.
This April 1st is “no joke” for millions of families and small businesses, said the Liberal Democrats in a statement. We need an “urgent cost-of-living plan”.
But we can’t afford more state aid in the form of energy bill subsidies, said The Times. Reeves talks of “targeted” help, but with millions of pensions and welfare claimants, “that could be a very big target”.
The “ruinous spending” of lockdown “crippled this country’s finances”, which Liz Truss ignored when she proposed a universal cap to blunt the impact of the Ukraine war. Gilts “went into freefall” and Truss “was toast”. Since then, the bond market has “consigned Britain to the naughty step”.
Our national debt is at a “crippling 96%” of GDP, the servicing of which will cost £112 billion this year. Inflation and interest rates are set to keep rising, and recession is a “distinct possibility” if the war continues. The government “dare not increase the debt with another universal handout”. The bond markets “will not wear it”.
What next?
Reeves told BBC Breakfast that any support for energy bills would be based on household income, targeted at those who need it most, unlike the universal support rolled out in 2022. “I want to learn the lessons of the past because when Russia invaded Ukraine, the richest, the best-off third of households got more than a third of the support,” the chancellor said. “That makes no sense at all.”
The chancellor said it was “too early” to say who would get help, as demand for energy is at its lowest in the summer. But she “hinted help might not come” until autumn, said the broadcaster.
The Bank of England published its financial stability report today, its first since the US-Israeli war broke out. Domestically, the “economic outlook has deteriorated”, but the UK banking system “has the capacity to support households and businesses”, it said, “even if economic and financial conditions were to be substantially worse than expected”.
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