The British government’s plan to lift a cap on domestic energy bills by £500 ($604) in April risks temporarily worsening inflation and will make consumers poorer, according to a think tank.
(Bloomberg) — The British government’s plan to lift a cap on domestic energy bills by £500 ($604) in April risks temporarily worsening inflation and will make consumers poorer, according to a think tank.
State support measures currently cap the typical annual bill at £2,500, but this is set to rise to £3,000 in April. Wholesale gas prices have dropped dramatically but the government scaling back subsidies means the decrease won’t be felt by consumers until July, when bills will fall to about £2,400. “This rollercoaster makes little sense”, according to the Resolution Foundation.
It will particularly hit those on pre-payment meters, whose fees aren’t spread over 12 months and will need to find almost £250 for April’s bill alone, the think tank said. The plan is also likely to spark worries among energy utilities if their customers aren’t able to afford their bills.
“The point of government policy during this crisis has been to smooth consumers through the worst of the energy price shock,” wrote the Resolution Foundation’s Torsten Bell and Emily Fry. “But now policy isn’t smoothing prices, it’s causing the spike.”
The UK government is facing pressure to stabilize public finances even as tax revenues from the country’s oil and gas sector are expected to drop — mirroring the more recent decline in fossil-fuel prices. While that trend is also likely to ease pressure on household energy bills — and on government support measures — the Treasury has so far pushed back on making policy changes in response to volatile prices.
At the same time, the country is still struggling with double-digit inflation, which the Bank of England hopes will fall sharply this year as energy prices ease and the economy tips into recession.
According to the Resolution Foundation, abolishing plans to raise the energy bill cap would help to accelerate efforts to bring down headline price growth. UK inflation would average 7.5% in the second quarter without the energy cost spike, compared to 8.4% under current plans. Such early declines could also be important for keeping inflation expectations in check, it said.
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