Business
New energy price prompts call for help
The amount suppliers can charge households for energy has been cut by regulator Ofgem but bills will still rise in April as government help eases.
Ofgem’s announcement itself does not directly affect what customers will pay for gas and electricity but it reduces the costs faced by government.
The typical household bill will rise to £3,000 a year in April.
Campaigners say ministers should stop the increase because Ofgem’s new cap reduces the cost of support.
The typical annual household bill is set to rise from £2,100 to £3,000 in April because government help – known as the Energy Price Guarantee (EPG) – will become less generous and a £400 winter discount on all bills ends.
The government currently compensates energy suppliers with the difference between the guarantee and Ofgem’s cap.
The energy price cap was £4,279 in January but on Monday, Ofgem announced that the cap would drop to £3,280 in April because of falling wholesale prices.
TUC general secretary Paul Nowak said: “Energy bills are out of control. The government must cancel April’s hike. With the cost of wholesale gas plummeting ministers have no excuse for not stepping in.”
Emily Fry, economist at the Resolution Foundation think tank which focuses on improving standards of those on low and middle incomes, said: “While consumers won’t have to face typical bills of £3,280 this spring, many are still set to see bills rise by a fifth as government support is scaled back.”
Chancellor Jeremy Hunt previously told the BBC that although the policy remained under review, he did not think the government had the “headroom to make a major new initiative to help people”. Ministers also point out wider support, such as rising benefit payments in April, will help people.
How much you will pay
Under the government guarantee, a household using a typical amount of gas and electricity in England, Wales and Scotland is currently paying £2,500 a year for energy.
Without state support, that annual bill would have been £4,279 since January.
The chancellor has already announced that the EPG will become less generous in April, which means the typical household will be paying £3,000 a year.
Ofgem has now announced what that bill would otherwise have been £3,280 from April to July, without the guarantee.
Ofgem’s chief executive, Jonathan Brearley, said that April’s rise in bills was “deeply concerning” for many people, but there was some hope ahead.
He said the announcement “reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease”.
Tackling It Together
‘National act of harm’
The EPG began in October last year, and is scheduled to continue to April 2024. Falling wholesale prices mean the potential cost to the government could be billions of pounds less than initially thought but still totalling just under £30bn.
Such figures were, and could still be, highly volatile. The government says the “savings” would be money not borrowed, rather than a pot of money available to spend elsewhere. However, the figures have prompted dozens of charities and campaigners to call on the government to reverse the plan for a typical annual bill to rise from £2,500 to £3,000 in April.
The consumer finance expert Martin Lewis described the rise as a “national act of harm”. However, he said he was hopeful the government would cancel the increase.
“I do not know it will cancel that rise but I am more hopeful than I was after some rune reading,” he told BBC Radio 5Live. “I think there is a better than 50% chance that it will cancel that rise.”
Labour also wants to stop the increase. “Labour would use a proper windfall tax to stop prices going up in April,” said Ed Miliband, shadow climate and net zero secretary.
The Liberal Democrats have gone further and want energy bills to be cut. The SNP has also called for bills to be cut, seeking a “minimum” £500 cut to the level of the energy price guarantee.
The government guarantee, like any energy price cap, does not limit the total bill. It limits the cost per unit of energy.
The government also discounted everyone’s bills by an additional £400 this winter but this support comes to an end in April. Lump sum payments have also been available in Northern Ireland, which has a more complex market, including many households using heating oil.
People who pay for their energy by cash or cheque on receipt of a bill currently typically pay about £250 a year more than those who pay monthly by direct debit. This difference will be cut to about £200 from April.
Historically, Ofgem has said costs for these customers were higher for suppliers as they were more likely to miss payments.
Customers on top-up prepayment meters will also have a bill that is about £45 a year higher than a typical direct debit customer from April, owing to higher fixed costs.
They include mother-of-five Myra Butcher, who told the BBC she had “cut right back” on her energy use over the winter.
The 40-year-old, from the Isle of Wight, who lives in a rented property with a prepayment meter, said she had spent £80 a week heating her three-bedroomed Victorian home over the winter.
Mrs Butcher, whose husband suffers with colitis and cannot work, has three young children and two over the age of 18, and wants the government to continue with the discount scheme it operated this winter – paid via a voucher to those on prepayment meters.
“I’d like to see the scheme continue. A lot of the time working families are getting overlooked. A reduction in energy prices is not going to happen any time soon,” she said.
She also managed to get a £50 credit, after the charity that runs her local food bank was given a grant.
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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