Government extends energy bill cap by three months ahead of ‘budget for growth’ – business live

Jeremy Hunt has been criticised for not announcing the freeze of the energy price guarantee sooner, rather than waiting to drop the news early on Budget day.

Good Energy chief executive Nigel Pocklington says this has caused “unnecessary stress and anxiety” to hard-pressed households caught up in the cost of living crisis.

Pocklington says:

“The extension of the Energy Price Guarantee is certainly welcome news, but it should have been announced much sooner. The delay has caused unnecessary stress and anxiety for hard-pressed households who are trying to plan ahead during these difficult times.

Responses to the energy crisis have been dominated by short-term solutions for far too long, when we actually need a longer-term view if we want to achieve real and lasting change for consumers. This should include a proper debate on the introduction of a social tariff which would provide targeted support for those who need it most and would help to prevent desperate households falling into fuel poverty.”

Earlier this month, it emerged that energy suppliers had been told by officials to prepare two sets of bills for next month, as they awaited Hunt’s decision:

Martin Lewis, founder of MoneySavingExpert, has thanked Jeremy Hunt for listening to the calls not to hike energy bills by 20% in April.

Lewis led the campaign to keep the Energy Price Guarantee at £2,500 for another three months. He says that raising it to £3,000, as had been planned until this morning’s u-turn, would have caused “disproportionate harm” to many households.

Lewis says:

“A month ago, I wrote to the Chancellor asking him to postpone the 20% rise in the Energy Price Guarantee. That letter was supported by 131 major charities including Which?, National Energy Action, Citizens Advice, Alzheimer’s Society and more – plus Energy UK, the energy industry trade body.

I’d like to thank the Chancellor for listening. The rise – which would likely only have lasted three months – would have caused disproportionate harm financially and, with more ‘price rise’ letters, to people’s mental health.

“Of course, this doesn’t mean bills will get cheaper. In April we see the end of the winter energy support – the £66/£67 a month everyone has received to lower their bills. So in practical terms people are still going to pay more than they have been, but at least some of the planned rise has been forestalled.

Now we have to hope that the current predictions come true, that from July, the current wholesale prices will mean the price cap drops, and therefore bills fall by 19% – a welcome relief to millions.”

In other energy news, China relaxation of Covid-19 restrictions and the rebound of air travel will boost oil demand this year, a new report shows.

The International Energy Agency’s monthly analysis shows that global oil demand has edged up slowly so far this year, but will accelerate through 2023.

The Paris-based agency said in its monthly oil report that:

“Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang.”

Oil demand fell by 80,000 barrels per day in the final quarter of 2022, but is “set to accelerate sharply over the course of 2023”, the IEA says. Growth is set to rise from 710,000 barrels/day in the first quarter of this year, to 2.6 million barrels/day in October-December.

Global oil demand is expected to reach a record 102 million barrels per day this year, the IEA adds, as “rebounding air traffic and the release of pent-up Chinese demand dominate the recovery.”

Crude prices, though, are near their lowest since December, with Brent crude around $78 per barrel thoday.

The IEA says:

“Prices fell a further $3/bbl in March as macroeconomic worries escalated following the collapse of Silicon Valley Bank.”

The report also shows the impact of sanctions on Russia’s energy sales – with exports down over 40% in February.

Russian oil exports fell by 500 kb/d to 7.5 mb/d in February as the EU embargo on refined oil products came into force. Shipments to the EU fell by 800 kb/d to 600 kb/d, compared with more than 4 mb/d at the start of 2022.

Sailings to China and India also fell, while cargoes without a destination surged by 600 kb/d to 800 kb/d. Export revenues plunged another $2.7 bn to $11.6 bn, down 42% on a year-ago.

The crisis in the US banking sector casts a shadow over the budget today.

With three US banks having failed this month – Silvergate, Signature and Silicon Valley Bank – investors have been fretting that there could be further casualties.

The failure of SVB is not great optics for Jeremy Hunt’s push to make the UK the “next Silicon Valley”.

According to Bloomberg, it has even “ignited a debate” within the UK government over whether to include the words “Silicon Valley” in Hunt’s budget statement today.

The mood in the City is sombre this morning, with the FTSE 100 index of blue-chip shares down 1% or 76 points at 7560.

Victoria Scholar, head of investment at interactive investor, says,

“The Chancellor Jeremy Hunt wants today’s Budget to be boring, in stark contrast to the fiscal fiasco around the mini-budget last September. The UK is undeniably facing a tough economic backdrop with sky-high inflation, sluggish growth, the cost-of-living crisis and the war in Ukraine.

However, the economic outlook has improved in recent months with the UK managing to narrowly stave off a recession, the public purse logging an unexpected surplus in January and other indicators such as consumer confidence, PMIs and retail sales improving.

The government is unlikely to carry out drastic spending increases or tax cuts because of the backdrop of inflation as well as the hangover from heavy spending during the pandemic on expensive programmes like the vaccine rollout, the furlough scheme and track and trace. Instead, Hunt will try to focus on fiscal prudence while still providing enough support measures to prop up the Conservatives’ popularity at a time when Labour is steaming ahead in the polls.

All eyes were supposed to be on the Budget this week but the collapse of Silicon Valley Bank with concerns about financial contagion has superseded the famous red box. It has been a volatile week for financial markets as investors weigh up the negative economic impact from the bank’s failure versus the prospect of more accommodative monetary policy from the Bank of England and the Federal Reserve.

The UK’s Office for Budget Responsibility is expected to hand Jeremy Hunt more attractive economic forecasts than at the autumn statement last November.

The OBR is expected to cut its inflation forecast for this year from 7% to nearer 4% and to provide a sunnier picture of economic growth, revising the projected fall from 1.4% to nearer 0.5%, my colleague Phillip Inman explains.

It is also expected to say that the spending deficit improved after a rise in tax receipts, mainly due to higher than expected inflation over the last year. Hunt could have as much as £30bn spare and still bring down borrowing over the life of the forecast, though he is likely to bank most of it, keeping aside a war chest to spend before next year’s general election.

Measures expected to be announced today, on top of the energy support, include:

• An increase in the tax-free lifetime allowance (LTA) on pension savings, which could rise from £1.07m to as much as £1.8m, to try to discourage the over-50s from retiring early.

• 30 hours of free childcare for one- and two-year-olds and a boost to funding for existing provision for three-year-olds.

• Paying childcare support to parents on Universal Credit upfront, rather than in arrears, and increasing the amount they can claim.

• A ramping-up of sanctions for claimants who do not look for or take up employment.

• The creation of 12 investment zones – eight in England, four in Scotland, Wales and Northern Ireland, benefiting from tax breaks, each backed by £80 million over five years.

• Some £63m of money to help leisure centres with swimming pools meet energy costs and become more efficient.

Jeremy Hunt is also expected to end the UK’s “prepayment meter premium” today.

Currently, customers on pay-as-you-go meters currently pay more on average than direct debit customers, which is an added burden for many low-income households.

Today’s budget will end this energy premium, the Treasury says, “saving four million families £45 a year from July”.

Energy firms charge those pay-as-you-go meter customers more because it typically costs more to serve them, which is reflected in the regulated price cap, explains Emma Pinchbeck, the chief executive of industry body Energy UK.

She has welcomed today’s announcement:

The three-month extension of the energy price guarantee (EPG) at its current £2,500 level will save a typical household around £160, the Government says.

Prime Minister Rishi Sunak said:

“We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall.

“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

[It’s important to remember that the EPG caps the unit cost of energy, not the total bill]

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK government has extended its support for households on their energy bills, following pressure not to push up bills and plunge many thousands of families into poverty.

Hours before Jeremy Hunt is due to announce the budget today, the Treasury has performed a U-turn and confirmed that the energy price guarantee will continue at its current rate until the end of June.

The EPG, which limits a typical annual household bill to £2,500, had been due to rise to £3,000 per year at the end of April.

Announcing the move this morning, the Treasury points out that energy bills are set to fall from July, due to the drop in wholesale price.

Chancellor Jeremy Hunt says:

“High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.

The about turn had been widely expected, and will relieve some pressure on households already struggling the cost of living.

Hunt had faced pressure from campaigners, charities and the consumer champion Martin Lewis to extend the EPG support. Citizens Advice had warned that without further support, milllions of households would have faced ‘catastrophe’ from April.

Hunt will deliver the budget at 12.30pm, outlining the government’s tax and spending plans.

It will be billed as a “Budget for growth”, and include measure designed to help more people into work.

It’s expected to include a £4bn expansion of free childcare for one- and two-year-olds in England. This which will provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three year-olds.

New measure to encourage business investment, and offset some tax changes taking effect in April that will hit firms, are also expected.

Hunt has been examining whether to replace the super-deduction with a new “full expensing” system, which would let 100% of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.

But the chancellor could also face a Tory back-bench revolt over the Budget as he pushes ahead with a rise in corporation tax from 19% to 25%.

The Daily Telegraph reports there is a growing backlash, with Conservative MPs fearing a “chilling effect on the whole economy” if the rise is not abandoned.

The agenda

• 9am GMT: IEA’s monthly report on the oil market

• 12.30pm GMT: Jeremy Hunt to deliver the Budget

• 12.30pm GMT: US PPI producer price inflation report

• 1.30pm GMT: Office for Budget Responsibility publishes its UK Economic and Fiscal Outlook