If fuel prices were to rise as sharply as household energy bills, the government would face a political crisis. Soaring heating costs caused by soaring wholesale gas prices may not be felt immediately, but we will all feel the
pinch soon. The price cap on invoices is expected to rise by 50 percent to account for rising wholesale prices that have already bankrupted 20 small suppliers covering four million customers who had to be transferred elsewhere.
Bosses of energy companies met with Secretary of Business Kwasi Kwarteng to discuss how to avoid what has been called “a huge crisis for 2022”. Stephen Fitzpatrick of Ovo doubted ministers fully grasped the gravity of the situation. “There is an acceptance that there is a problem, but nowhere near urgent enough to find a solution.”
One answer would be to remove VAT on energy, but the government is reluctant to do so partly because of the revenues it generates, but also because the costs of charging gas are at the heart of its “green” agenda. . Other factors are beyond the government’s control, such as the weather in Eastern Europe and Russia’s use of its gas to pressure EU countries over Ukraine.
But with average household bills set to exceed Â£ 2,000 when the price cap is lifted in the spring, doing nothing is not an option. A tightening of energy supplies this winter amid new panic lockdowns would be an economic disaster. Power cuts would make working from home difficult, if not impossible.
Ministers can hope that large-scale imports of liquefied natural gas to Europe from America will push prices down again. But given the volatility of the market, this can only be a temporary reprieve.