AJ Bell press comment – 8 September 2022
Today’s energy price guarantee announced by the prime minister will provide a level of certainty to households, says AJ Bell financial analyst Danni Hewson:
“Liz Truss has finally thrown out a lifeline to people who’d been utterly unable to fathom how they were going to cope with winter’s energy bill hikes. The freeze at £2500, coupled with the £400 support on bills already announced, will still mean most households will be paying a bit more than they did last winter - around £36* a month based on typical energy usage - but at least they’ve escaped the nightmare that had been lurking.
“And the ‘capped cap’ will stay in place for two years, which does bring a level of certainty to consumers, although those on the lowest incomes might still be nervous about how they’ll cover bills next year.
“Businesses have less certainty, but the six-month reprieve will at least bring some back from the cliff edge. A promise that vulnerable sectors like hospitality will get further help is welcome, if woolly.
“What’s likely to be a big boon is increased consumer confidence and falling levels of inflation. If people have a bit more money in their pockets than they were expecting this Christmas then it might not be the wash out some sectors had been fearing, though economists will keep a weather eye on how any additional spending impacts underlying prices.
“And there are still a huge number of questions to be answered, not least exactly how the bill will be settled. The public purse has been raided over the last few years and markets are nervous about adding additional debt at a time of rising interest rates and an economy stumbling towards recession.
“But the new Prime Minster doubled down on her aversion to a further windfall tax on producers, instead seeking to push those businesses to use their profits to revolutionise the UK’s energy market. The current situation has made it clear things are broken and without a definitive plan, and the will to follow through on that plan, two years could flash by. We could yet find ourselves right back where we started.
“At least this winter shouldn’t claim the scalp of more suppliers as today’s intervention includes £40 billion to shore up their liquidity.
“This is a massive challenge and one that will require more than one speech to rectify. A complete overhaul of energy pricing, supply and generation will take time and the clock is ticking towards 2050 and the UK’s net zero commitments that Liz Truss says are still a priority.”
*Price per month on a cap of £1,277 equates to an average of £106 for a household with typical use. Price per month on a cap of £2,500 equates to £208 per month, less £66 from the previously announced £400 rebate, leaves £142 a month for typical usage.
