Government 'can sort out' energy cost crisis says expert
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The Prime Minister’s subsidy scheme will cap the average household energy bill at £2,500.
This will see suppliers make a margin of 1.9 percent on the energy they sell to the public via the scheme.
Due to skyrocketing wholesale gas prices, the cost of supplying households across Britain with energy is forecasted to reach over £80billion across the next year.
The cost-of-living crisis has been fuelled by soaring inflation and rising gas costs which in April saw household bills increase by an average of 54 percent to £1,977.
Ofgem, the energy regulator regularly increases the price cap to be in line with increasing wholesale costs.
The cap was introduced in 2019 and following the latest price cap rise, average household bills were due to reach £3,549 in October.
The new Prime Minister ensured that one of her first moves as leader was to help households tackle the energy costs by freezing bills to an average of £2,500 per year.
The PM’s bailout plan will see the Government pay the difference between the lower frozen rate and what they would have charged customers before the plan was in place.
Energy analyst Martin Young from Investec spoke about the 1.9 percent margin which is being supported by a state subsidy.
Young said that if the price cap stays at its current level, then over the next year the industry would see a margin worth £1.6billion.
It is thought that the large allowance will be criticised as public spending by the Government is already at such a high level.
It is thought that many of the energy suppliers will make a smaller profit than the given margin by running their businesses in a different manner than how Ofgem has predicted.
Last month Ofgem reviewed the attainable profit margins suppliers should be able to make.
The regulator said: “The EBIT [profit] allowance in the cap scales with customer bills…this may result in profits being unduly high in a high-price and high-cost environment.”
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Concerns are continually rising for suppliers who are not backed by big companies as the freeze will not give them enough support.
The National Chair of the Federation of Small Businesses, Martin McTague said: “Energy cost rises are a clear and present danger to small businesses.
“It is hard to overstate the level of threat to small firms up and down the country in almost all industries and sectors.”
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