Energy price rises hitting whole economy, trade body boss says

5 January 2022, 12:04

Power lines
Wind Power. Picture: PA

Energy bills could be hiked by more than 50% in April, according to experts.

The rise in energy prices is something that is affecting the entire economy, the head of an influential trade body has said as the industry prepares for a meeting with ministers this afternoon.

Emma Pinchbeck, the chief executive of Energy UK, told BBC Radio 4’s Today programme that the spike in energy prices that is expected in April could lead to a 2% rise in the cost of living.

“This is a wholesale price risk, which is a whole-economy risk, it doesn’t just apply to the energy retailers or the sector,” she told the programme.

“It’s quite likely that the Treasury themselves will have to take a view on what to do because this impacts not just the energy retailers, but the whole economy. Energy costs going up like this could be a 1% to 2% inflationary increase.”

A squeeze on global gas supplies caused by higher demand around the world has pushed up prices.

In the UK this will mean a knock-on for households come April.

Until then customers are protected by the energy price cap, which limits the amount a household can be charged to £1,277 per year for the average household.

However, in April the price cap will be updated – it is changed twice a year – with predictions that it could be hiked as high as £1,995, a more than 50% increase.

Experts have warned that this could be crippling for households, and the Government is meeting with energy suppliers on Wednesday to discuss issues.

It is faced with several options to help customers: One could be to cut VAT from 5% to zero on domestic energy use.

But with energy bills rising 50%, a 5% cut is unlikely to make a huge difference to households’ bottom line. It is also a change that will help both those in need and better off households who do not need assistance.

Another proposal is to improve the warm home discount. During this winter households can claim £140 off their bills if they are on lower incomes, or some pensioners.

A final alternative might be to reduce green levies on energy bills.

Ms Pinchbeck said that the trade body had supplied as many ideas as possible about what can be done to help household and businesses through the crisis.

“Bills are going up so much that there is a wholesale price risk which impacts the whole economy and that’s got to be a Government lead, as much as we can provide ideas,” she said.

In the past customers with high energy bills have been advised to shop around for better deals.

But because the energy price cap is at the moment the best deal on the market, consumer experts are now moving away from this old advice.

On Wednesday consumer champion Martin Lewis said that while some customers might still be able to shop around, most are better off sticking to the price cap if they need a new deal.

“It looks like most people should do nothing (no certainty, I don’t have a crystal ball), it looks like only a few edge cases should be looking at fixing right now,” he wrote on MoneySavingExpert.com.

“So if in doubt, just stick on today’s cheapest price – which is the cap.”

By Press Association