• Simon Virley, Partner |
3 min read

Top of the in-tray for the new Prime Minister on 5 September will be the cost of living crisis, and specifically what to do about soaring energy bills for both consumers and businesses.

The expected rise in energy bills this winter is unprecedented. It far outstrips anything that happened during the 1970s oil price shocks. We could see average domestic energy bills reach an eye-watering £6600 pa next year, as a result of very high global gas prices. Nearly a quarter of households could be spending more than 25 per cent of their net income on energy.

Liz Truss, currently leading in the polls to become the new Prime Minister, has outlined two main measures thus far to deal with this crisis. First to ‘temporarily remove green levies’ from energy bills. This could save c£100 pa or 5 per cent of current average bill levels (£2000) but won’t be simple to do in administrative terms and could damage confidence in green investments if not carefully handled. The second is to reverse the National Insurance increase, but this only saves c£60 pa for somebody on the National Minimum Wage. Rishi Sunak has said that he would remove VAT (currently 5 per cent) from energy bills which, like removing ‘green levies’, would save around £100 pa off an average bill.

So these measures would barely scratch the surface of the increase in bills for many, particularly for poorer households, and do little to provide comfort for businesses seeing operating costs surge almost overnight. Much more will need to be done. And with both contenders confirming that they are looking at additional measures, what options should be considered by the new PM?

The first step should be to announce an additional emergency package of support as soon as possible with significant direct financial help to those households that need it most this winter, alongside measures to support businesses that could face closure without support for spiralling energy costs.

Second, we need to urgently address the UK’s poor energy efficiency record. Average bills for energy-efficient homes can be over £1000 lower than for the least energy efficient. Alongside a serious commitment to invest in long-term measures to address the UK’s poorly insulated housing stock, a more immediate action would be to launch a high-profile public information campaign, to help people understand the immediate and low-cost changes they can make to get bills down instantly and permanently. This could include advice on simple adjustments to their heating settings (like boiler flow rates and temperature settings) and easy-to-install insulation measures (like draft proofing).

Britain has the least energy-efficient housing stock in Europe, yet, other European countries, like Holland, France and Germany are doing this, as a matter of urgency right now, to reduce bills and their dependence on imported gas from Russia.

Third, we need to utilise the cheapest forms of clean energy, including onshore wind and solar, which can generate electricity at a fraction of the cost of gas-fired generation right now. Not maximising the use of these technologies will inevitably push up the costs of the energy transition.

Fourth, we need to unblock the grid and planning constraints to get the planned 50GW of offshore wind connected in a timely manner. Offshore wind projects developed under the Contracts for Difference regime are currently paying back money to consumers, as current power prices are above the price ‘guaranteed’ to these projects under their 15-year contracts. Investors want to build more of these wind farms, but are being held back by lengthy grid and consenting delays.

Doubling down on energy efficiency and clean energy in this way will reduce bills, improve energy security and reduce our carbon emissions. Another wobble on the clean energy transition will only increase costs to consumers, which we simply cannot afford given the impending energy bill tsunami we are facing.