Rishi Sunak’s first attempt to “take the sting out” of rising household energy bills was a bits-and-pieces £9bn support package that seemed to rest on the idea that the crisis would go away soon. The giveaway in the thinking was the £200 per household “rebate” that represented about half the headline figure. It wasn’t a rebate in a true sense – it was just a means to shove a portion of customers’ bill into later years, when, the chancellor was presumably calculating, wholesale prices would be lower.
The plan sounded hopeful when unveiled in February but now reads as naive and politically unfeasible. Latest projections suggest October’s price cap will rise by another £600 per household on average – that’s on top of the £694 increase that kicked in at the start of this month. And a key point, as a battalion of energy bosses told MPs on the business and energy select committee on Tuesday, is that the new tariff will apply during the winter months of peak consumption.
That matters to anybody who pays for their energy via a prepayment meter, which typically tends to be lower-income households. At the moment, the hit from April’s higher tariff has been slightly softened by lower consumption levels. Come October, higher prices will coincide with a rise in demand. Further fiddles with “rebates”, or even a further widening of the £150 a year warm homes discount scheme, aren’t going to cut it.
Even today’s position is generating a surge in bad debts and calls from concerned customers, all the chief executives reported. Here was Keith Anderson of Scottish Power: “It has got to a stage now where the size and scale of it is beyond what I can deal with, beyond what I think this industry can deal with. I think it needs a massive shift, a significant shift in the government policy and approach towards this.”
His suggested shift was a £1,000 a year discount for households in fuel poverty or on prepay meters via what he called a “deficit fund”. If 8m households will soon be in fuel poverty (defined as those spending at least 10% of their net income on energy), as some forecasts suggest, that’s a commitment to find £8bn a year – in real money, rather than artful deferrals and suchlike – as long as the crisis lasts.
The chancellor may take fright at such sums, but they sound like a hard-headed appraisal of the problem. Barring a miracle in the wholesale gas market, the real price shock has yet to arrive. Alternatives to Anderson’s idea are available, but it’s time for Sunak to get serious about designing a support scheme that can last longer than a summer. Crucially, it also needs to be announced ahead of time to reassure consumers. Allowing events to drift until October would be inexcusable.
Hayden Wood, the co-founder and chief executive of Bulb, at least had the sense to sound sheepish before the same MPs. Apologies for his firm’s failure came thick and fast. Quite right too: Bulb was the biggest collapse within the retail energy sector and the company is being propped up in special administration via taxpayer support that, at the Office for Budget Responsibility’s last estimate, will reach £2.2bn.
In the circumstances, the revelation that Wood is still being paid his £250,000 a year salary is extraordinary. Yes, the administrators may want him to hang around but, come on, it’s been five months since Bulb’s corporate lights went out and a buyer isn’t yet in sight. An invitation to Wood to cut his salary (massively) is in order.
There’s little doubt that private equity firm TDR Capital and the Issa brothers enjoyed good timing when they financed last year’s £6.8bn leveraged buyout of Asda. Morrisons, the yardstick for comparison, was subsequently sold at a higher multiple of earnings.
Even so, one should take TDR’s claim of a near-20 times return on its thin equity slice with a pinch of salt. Yes, the marketing documents seen by the FT probably offer valuation support of a sort. The nose-bleed level of financial gearing made the deal a work of supreme financial engineering and a few post-acquisition disposals will have eased the debt metrics slightly.
Yet the tricky part is turning a paper profit into a real one. Morrisons is already warning of lower profits and Tesco is making aggressive noises on prices. TDR’s pathway to getting out of Asda currently looks long and uncertain.