Energy crisis could cost the UK more than the country spent on the pandemic

The UK will have to find an answer to rising energy bills soon or it risks a humanitarian crisis.

But freezing gas and electricity prices for the next two winters could cost the government more than 100 billion pounds ($118 billion), more than it spent paying millions of people’s wages during the pandemic.

Earlier this year, the UK government tried to protect households against 90% of expected increases in energy bills through tax cuts, energy bill discounts and direct payments.

But natural gas and energy prices have soared since then, as have forecasts of future increases.

Researchers at the Institute for Government said on Tuesday that the government would need to spend an extra 23 billion pounds ($27 billion) to protect households against about 90% of expected increases in energy bills by April 2023. April 2024 would cost another £90 billion.

That forecast coincides with the cost of a bid from Scottish Power, one of the UK’s biggest energy companies. He called on the UK government to protect millions of families by freezing their accounts for two years, according to a report in the Financial Times.

The average annual bill is currently £1,971 ($2,318) — up 54% so far this year — but is forecast to exceed £3,500 ($4,117) when the price cap is set on Friday. fair for the last three months of this year.

Analysts at Auxilione, a research firm, say the average family could pay up to £6,433 ($7,579) a year for natural gas and electricity next spring if the government doesn’t intervene.

Scottish Power says the UK government should cap energy bills at £2,000 ($2,356) and give suppliers money to meet much higher gas and electricity costs in wholesale markets.

The £100bn cost of the subsidy would come from increasing government borrowing financed by general taxes over the next decade or so, the Financial Times said, citing unnamed sources familiar with the matter.

“It’s going to be really horrible for a lot of people,” Keith Anderson, CEO of Scottish Power, told STV, a Scottish TV station, on Monday, referring to the price increases.

“This is bigger than the pandemic. It is a major national crisis,” she added.

The company did not immediately respond to a request for comment from CNN Business .

The UK government’s 18-month pandemic license scheme cost nearly £70bn ($82bn).

In March 2020, as the outbreak of the coronavirus pandemic shut down businesses, the government agreed to subsidize workers’ wages to avoid mass layoffs.

So far this year, the government has offered around £33bn ($39bn) in support to households to help with energy costs, through a combination of tax cuts, energy bill discounts and direct payments. said the Institute for Government in its report published on Tuesday. The UK government says it is considering more alternatives.

“We know the pressures people are facing with rising costs, which is why we continually take action to help families, providing support worth £37 billion,” said a spokesperson for the Department for Business, Energy. and Industrial Strategy.

“We are giving £400 off energy bills this winter and eight million of the most vulnerable families will receive £1,200 of extra support. While no government can control global gas prices, more than 22 million homes are protected by the price cap, which continues to insulate families from even higher prices,” the spokesperson added.

But alarm is spreading within the UK energy industry.

On Tuesday, Philippe Commaret, an executive at France’s EDF, a major player in the UK market, told the BBC that without more support, around half of UK households could fall into fuel poverty from the start of the year. next year, which means they have to spend more than 10% of their disposable income on energy.

Leaders at the UK’s National Health Service last week warned of a “humanitarian crisis”. Many people may fall ill this winter as they “face the terrible choice between skipping meals to heat their homes and having to live in cold, wet and very unpleasant conditions,” they said.

Natural gas wholesale prices started to rise last year as countries reopened from their pandemic lockdowns, causing a global surge in demand.

Russia’s invasion of Ukraine in late February, and the resulting energy crisis, only drove prices higher.

Western countries have banned Russian imports of coal and oil, and Europe is desperately trying to get rid of Russian natural gas.

June was the first month on record that the UK did not import any fuel from Russia, traditionally one of its main suppliers, according to data released Wednesday by the Office for National Statistics.

Exorbitant prices have caused 29 smaller UK energy providers to go out of business since last summer.

Those who survived passed on much of the cost to their customers.

— Benjamin Brown contributed reporting.