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How could the energy price guarantee be tweaked?

UK
  • There has been talk this morning of the government reversing some of the energy price guarantee. This is a very poorly targeted scheme and is applied universally.
  • For households, it has capped the unit prices of gas to 10.3p/hWh and 34.0p/kWh for electricity (as well as capping the standing charge). This had the effect of limiting the average energy bill to £2,500/year for households.
  • However as energy unit prices are capped, those who are the heaviest energy users are effectively receiving the largest subsidy. The heaviest energy users tend to be the wealthiest with the largest houses - those who don't necessarily need the help of government subsidies. This also makes the scheme far more expensive than it really needs to be.
  • Something that the government could do is to introduce different tiers for energy prices. For example, allowing the average (or double the average) amount of energy use to be capped at the unit prices outlined above, but then to use market prices for any usage above this.
  • This would probably be the simplest way to limit bills. Other alternatives could be to have more energy rebates for people on benefits or the elderly - but this would increase inflation (and could therefore risk more second round effects). Or to limit the scheme to those up to Council Tax Band D (but this would also mean inflation rose more than expected and would be more difficult to administer).
  • Whether we get any further clarity on this today - or will have to wait for 31 October remains to be seen.
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