How has the government’s energy crisis response been received?.

Original Article
October 7th, 2022


Johnnie Leather, policy analyst at sitting in sava reception

After a turbulent couple of weeks following the government’s mini-budget announcement, their response to the energy crisis might seem like old news. Despite this, the strategy holds vital implications for how millions of households will keep warm this winter.  With the government’s approach also bearing changes for retrofit funding and renewable generation, it is important to understand exactly what has been promised, and how it will impact the UK’s energy efficiency agenda. In this article, Johnnie Leather provides full details of the government’s energy crisis response, and how commentators predict the policy will perform.

Following the Chancellor, Kwasi Kwarteng’s ‘mini-budget’ announcement, we now have the full picture of how rising energy costs will be tackled in the UK. In a speech to the Commons Kwarteng confirmed price freezes on domestic and commercial energy bills, funding for housing improvements, and new energy generation, whilst also answering the all-important question – who’s paying?

Since the government announced their energy crisis response it has been largely overshadowed by their questionable economic strategy, it’s worth revisiting the still important energy strategy and its reception, to see how their policy will hold up over the testing winter months ahead.

What has been promised?

For Households – The Energy Price Guarantee, a 2-year price cap on energy prices for homes, starting 1st October. This means the average household’s annual bill will be £2,500. It’s important to remember bills will vary depending on household usage, as this is not a fixed upper limit.

The Energy Bills Support Scheme, £400 taken off all household energy bills paid in 6 monthly instalments from October. There will also be further support for the elderly, disabled and those on means tested benefits.

For Businesses – The Energy Bill Relief Scheme, a 6-month price cap on energy prices for corporations. From 1st October prices will be frozen at £211 per MWh for electricity and £75 per MWh for gas. The scheme will be reviewed after three months and potentially extended for vulnerable industries, but it is not yet clear what sectors this might include.

For Funding – The Energy Markets Financing Scheme, is how the government will cover the cost of the price freezes. The scheme sees the Treasury working with the Bank of England to provide necessary liquidity to energy companies, covering losses brought on by price freezes. The annual £150 green levy usually paid by consumers is being removed from their bills and picked up by the government.

For energy generation – A new round of oil and gas licensing, launched by the North Sea Transition Authority, expected to deliver over 100 new licenses. A lift on the shale gas fracking moratorium. Changes to onshore wind farm planning policy, allowing for new farms to be deployed easier.

For energy efficiency – The Energy Company Obligation, a further £1bn pledged for the programme. The already existent scheme requires energy suppliers to fund retrofit measures for the most vulnerable and least efficient homes in lower council tax bands. Funding will be available from April 2023 and will be spread over 3 years.

How has it been received?

The consensus amongst commentators is that the government has made the right decision to intervene with rising energy prices, however their action does not go far enough for the most vulnerable.

Former Prime Minister, Gordon Brown, took to twitter to criticise the plan; “After a summer of doing nothing the government has finally done nowhere near enough”. He also pointed out that despite the price freeze domestic bills will still rise by 25% for millions, risking 5 million children being pushed into poverty.

Worryingly, this might come as a surprise for many households, with Uswitch research finding that 2 in 5 wrongly thinking £2,500 is the fixed upper limit for energy bills, opposed to an estimated prediction for the average home.

Counter to this, Liz Truss lauded her plan for providing the country with the support required to get through winter, giving people certainty on their bills, curbing inflation, and boosting growth.

The government’s Energy Bill Relief Scheme has been warmly met by especially vulnerable industries like steel production, hospitality, and retail.

Chief Executive of UKHospitality, Kate Nichols, recognised that the government’s support package is providing a lifeline for many shops and eateries which will get them through the crucial Christmas busy period.

However, not everyone is convinced. Liberal Democrats Treasury spokesperson, Sarah Olney labelled the scheme a “temporary sticking plaster”, stressing the inability for businesses to plan long term when the price freeze is only promised for 6 months.

The government’s strategy to achieve long-term energy price reduction by increasing UK based generation and reducing domestic energy demand has been viewed as weak too. Many are disappointed the Chancellor did not take the opportunity to provide more funding for retrofitting and renewable generation.

Luke Murphy, from the Institute for Public Policy Research had this to say on energy generation: “There were welcome albeit small steps on energy efficiency and depending on the detail, onshore wind, but in other areas, the government is going in the opposite direction. It is removing the moratorium on fracking, expediting licenses to drill for more climate destroying and expensive oil and gas, and proposing to rip up environmental protections.”

Similar criticisms were echoed in relation to the government’s domestic energy efficiency policy.

UK100’s Membership Director, Christopher Hammond, had this to say: “Britain is paying the price of successive Governments kicking the can down the road and not making our homes fit for the future … To avoid another winter like this one, where millions are expected to fall into fuel poverty, we need a locally-led energy efficiency revolution. Looking at the headline figures, £3bn for boosting energy efficiency is promising, but it’s unclear if this is new money – and not just repackaged promises.”

Hammond highlights an important point here around funding, with it often hard to decipher if the government is pledging new money or simply re-mentioning previous promises.

On the other hand, Sam Hall, Director of The Conservative Environment Network, an independent forum for UK conservatives, was unsurprisingly pleased with the government’s steps: “It is brilliant news that the Chancellor has listened to calls from the Conservative Environment Network for a significant expansion of insulation funding.”

The removal of the green levies from consumers bills has been met with little rebuttal, with it still being paid for, only now directly from the government’s pocket.

The same cannot be said for the government’s Energy Markets Financing Scheme. Caroline Lucas, Green Party MP, said; “If the Chancellor were really on side of British people rather than fossil fuels giants, he’d scrap the ‘investment allowance’ subsidy, and introduce a windfall tax worthy of its name.

Whilst a windfall tax was also the Labour Party’s preferred option, Truss was strongly against doing so, over fears further windfall taxation would stifle energy companies planned investments in UK based green generation.

In all, opinions are certainly mixed on the government’s energy crisis strategy. Whilst no household or business will be disgruntled by a freeze on energy prices, millions will still feel, quite literally, short changed. Equally, the current long-term plan for energy generation and domestic demand reduction is weak and could prove problematic for creating a secure carbon neutral energy market. One can only hope that Truss’s recently launched review into the government’s net zero strategy will lead to serious policy improvements in these areas.