Energy bills set to be cut via government loans

With household energy bills soaring, and many people living on the edge, bills are expected to be cut by energy companies using government-backed loans.

Under the plans, energy firms would use the loans to subsidise customer payments, which would then be repaid via additions to bills or repaid via future taxation. Under these plans, it is expected that energy bills could be frozen at their current levels for approximately 18 months.

Energy bills are set to rise on 1st October, pushing a typical gas and electricity bill from £1971 to £3549. However, the government is expected to announce on Thursday that it will be stepping in before the rise occurs.

This will be intended to make up the gap between the cost of gas and electricity and the fixed price they charge customers.

Energy bosses have warned however, that freezing all bills at the current price cap could cost a huge amount of money, with Scottish Power estimating a cost of nearly £100 billion. However, Dermot Nolan, former chief executive of Ofgem, the energy regulator, has warned that this estimate could be “conservative”, and also questioned how helpful it would be for the most vulnerable in society:

“This kind of price freeze means that a multimillionaire will get exactly he same level of protection as everybody else. I hope that at the very least eh £400 that is currently being given to more vulnerable people is kept, and hopefully extended.”

Businesses Struggling with Energy Costs

As well as households, businesses are set to be offered some relief in the plan to be announced on Thursday. Businesses unlike households are not protected by a energy price cap, and with many fixed-rate deals set to expire this October, thousands of firms may have to face fuel cost increases of 400-500%. Facing such a hike, thousands of businesses are set to go bust or have to fire staff to cut bills.

While the mechanism introduced by government to help businesses may look more complicated, it could see the government mandate energy firms to offer specific reductions on the unit price of the energy used by businesses.

Were businesses to be included in the government’s energy plan, this could easily run over £100 billion, which would mark an odd start for a low tax low spend Prime Minister.

Craig Beaumont of the Federation of Small Businesses said: “This commitment looks very promising, and arguably the best reassurance that small businesses need that some form of help with bills with follow – not just for households. The scope and reach of the help is going to be absolutely crucial to save hundreds of thousands of small businesses this winter.”

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