Amid fears that more energy firms could collapse within days, Business Secretary Kwasi Kwarteng was meeting around 30 leaders of the sector to put together contingency plans, possibly with state-backed loans, to safeguard consumers from a sudden spike in their gas bills.
However, the taxpayer instead faces having to pick up the multi-billion-pound cost of the state intervention which could include the creation of a “Northern Rock-style bad bank” to take on unprofitable customers from firms that go under. The type of support being mooted echoed action taken during the 2008/9 financial crisis.
But with millions of families being hit by rising prices as inflation jumps, and the looming cut to Universal Credit and tax hikes, the Prime Minister signalled that the Government was ready to intervene to avoid a winter fuel crisis.
Shortly after touching down in New York on a three-day US visit, Mr Johnson said: “We will make sure we work with all the gas companies to do whatever we can to keep people’s supplies coming, to make sure they don’t go out of business, and to make sure we get through the current difficult period.
“We’ve got to try and fix it as fast as we can, make sure we have the supplies we want, make sure we don’t allow the companies we rely on to go under.”
Wholesale prices for gas have surged 250 per cent since January, with a 70 per cent rise since August alone, piling pressure on smaller firms, some of whom had reportedly not bought enough supplies in advance or adequately hedged. Foreign Office minister James Cleverly said the Government “ideally” wanted businesses to stay afloat “organically” through “their own efforts”. However, as the crisis grew:
Joe Malinowski, founder of comparison site TheEnergyShop.com, said the sector was facing its own version of the 2008 crisis that almost brought down the global banking system. He warned that wholesale prices will leave the industry facing a £14 billion shortfall which could only be met by higher bills or huge government intervention. He said the cap on standard variable tariffs will have to go up by as much as £280 next April.
Peter McGirr, founder and chief executive of Green Energy, told BBC Radio 4’s Today programme: “I feel that without any support mechanism being put in place by government, it’s unlikely we will see the winter through.” He suggested a possible increase in the price cap or government funding.
Ministers said the security of gas supplies was not under threat.But one industry consultant claimed the UK could see the return of the three-day working week, recalling the dark days of the Seventies. Clive Moffatt told the Daily Telegraph: “Prices could go through the roof. We could easily see a three-day working week.”
Mr Johnson compared the spike in wholesale gas prices to the nation putting “the kettle on at the end of a TV programme” as he insisted the problems will be temporary.
However, a Credit Suisse briefing suggested millions of households could see their bills rise by £250: “Default price caps to consumers are set to move to £1,277 on October 1. If wholesale energy remains at current levels, price caps will rise to £1,525 in April 2022.”
The idea of state-backed loans or a “bad bank” are believed to have come from the energy sector.
At the same time ministers face warnings of shortages on the shelves from the knock-on effect of the gas price rise.
Producers have warned that supplies of meat, poultry and fizzy drinks could all be hit due to a shortage of carbon dioxide. It follows the shutting down of two large fertiliser plants in Teesside and Cheshire — which produce CO2 as a by-product — with the owners citing the gas price rises. Nick Allen of the British Meat Processors Association said the UK could be two weeks away from British meat disappearing from shelves.
Mr Cleverly said: “We’ll continue working with the sector to ensure that there is food on the table and gas in the pipes.”
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