Business
Energy bill set to rise but help cushions blow
Energy prices will rise for millions of households on Saturday, but the increase has been cushioned by a government cap on the cost per unit.
It stepped in after an 80% increase in domestic gas and electricity bills was earmarked for the first half of winter.
A typical annual bill will go up from £1,971 to £2,500 but will be further mitigated by cost-of-living payments.
But prices will still be twice as high as last winter, and charities say that will leave many struggling.
The squeeze will be particularly acute for those on prepayment meters, who pay for energy as they use it, and so have largely been unable to smooth out increased bills over the year.
“The most vulnerable, including children, will be cold and hungry as energy prices spiral, despite government support,” said Adam Scorer, from charity National Energy Action.
People paying by direct debit tend to build up credit during the warmer, lighter summer months which then funds some of their extra use during the winter.
‘We are trying our best’
Jaqueline Jones in Urmston in Manchester says she and her husband Joe are already taking steps to cut down on their energy bills.
“We’re only filling the kettle to the amount we need, watching how often we put the washing machine on – little things like that,” she said.
They are also hanging washing indoors and finishing it off for 10 minutes in the dryer, as opposed to using the dryer more often.
They are on a standard variable tariff for their electricity and energy bills, but haven’t received an updated bill recently to know whether the measures are making a big difference as of yet.
“Hopefully when the actual bill does come in it won’t be too much,” Jacqueline says, adding that she is now watching their smart meter every time they make a cup of tea.
“I watch the numbers every time I put the kettle on – oh my goodness how it whizzes around!”
But she says the situation overall is frightening for the couple who are retired and rent a Victorian property.
“We’re both pensioners and we don’t have a great pension other than the government one, so we have to make sure it’s going to last out, along with the bit of savings we do have.
“We’ll just have to see and play it by ear… but we are trying our best.”
New price cap
Every household pays for the energy it uses. There is no absolute cap on the total cost.
Under the government’s two-year price guarantee, the average unit price for dual fuel customers paying by direct debit on variable deals will be limited to 34p per kilowatt hour (kWh) for electricity and 10.3p per kWh for gas.
With standing charges added, it means a typical household – one that uses 12,000 kWh (kilowatt hours) of gas a year, and 2,900 kWh of electricity a year – will not pay more than £2,500 a year for energy from Saturday.
Without this intervention, that annual bill would have been £3,549 a year, rising from the current and soon-to-expire level of £1,971 a year. Those on prepayment meters pay slightly more.
The chancellor, Kwasi Kwarteng said that the government’s “energy intervention” meant that people across the country were protected.
However, last winter, the price cap – governed by the energy regulator Ofgem – meant the same typical household paid £1,277 a year.
That doubling of a typical energy bill is why millions of households have cut back on their energy use, according to a survey by the consumer group Which?.
Its findings, which it shared with BBC News, suggested that 58% of those asked reported reducing their usage of lights and appliances around the home. More than four in 10 said they had reduced hot water consumption, including taking fewer and shorter showers.
Given the wider context of rising prices, the consumer group also said that 60% of those surveyed had bought cheaper food products than usual and 36% had planned meals more, for example by batch cooking.
Which? has launched a campaign calling on supermarkets, telecoms and energy businesses to offer more support to customers facing financial difficulty, such as ensuring cheaper social broadband tariffs and value-range food is equally accessible to shoppers across the country.
“While government intervention is necessary, we also believe businesses across essential services can and should do more to help,” said Rocio Concha, its director of policy and advocacy.
Cost-of-living payments
The government’s earlier package of cost-of-living payments is continuing.
The next stage begins from Saturday when everyone’s energy bill will eventually be cut by £400. The discount will be applied over six months, with a reduction of £66 in October and November, and £67 every month between December and March 2023.
The discount will be made automatically by energy suppliers in England, Scotland and Wales, with plans for the equivalent to be paid in Northern Ireland.
There will be further payments later in the winter for people who receive benefits and are on low incomes, and pensioners.
The energy plans were in place ahead of last Friday’s tax-cutting mini-budget which has been followed by days of turmoil on the markets.
The government has said its energy guarantee would cost £60bn for the first six months.
However, industry analysis suggests the total bill could be between £130bn and £150bn.
The cost will be met by an increase in government borrowing, but the likely cost of this has soared after financial markets reacted badly to the chancellor’s plans to introduce tax cuts worth £45bn.
There are also fears that the upheaval might affect the housing market.
Hundreds of mortgage products have been pulled since Friday, and are likely to return at higher costs, amid fears the Bank of England will have to raise interest rates much more sharply than previously expected.
Reports /TrainViral/
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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