Alex Brummer: The energy price ceiling that no longer fits

Cap that no longer fits: ALEX BRUMMER warns that energy prices are only likely to increase and that consumers now have to expect higher bills every three months

Now we’ve heard it personally from Governor Andrew Bailey.

The reason why the Bank of England’s inflation forecast was so wrong, escalating from 4 percent a year ago to a peak of 13.3 percent this autumn, is due to the war in Ukraine and its impact on energy prices. Nobody could have guessed that, he says.

In response to the oil and gas price shock, regulator Ofgem is updating how the price cap that sets most household bills works.

‘Unforeseen circumstances’: Bank of England Governor Andrew Bailey says the reason for the wrong inflation forecast is the war against Ukraine

Long gone are the days when consumers could go to comparison sites and choose the cheapest deal.

The switch has become a shady deal as about 30 energy companies, many of which are poorly run and loosely regulated, have so far gone bust. Most customers were forwarded to other providers.

The new plan for Ofgem is to adjust the cap every three months instead of every six months. In other circumstances, this would have been popular with the consumer.

Instead of the so-called rocket-and-feather effect, where higher prices are passed on immediately and lower prices are delayed, there will be more rapid transmission of changes in the wholesale market.

In fact, Ofgem discussed such a change well before the Ukraine conflict, and monthly changes were even considered.

The unfortunate consequence of a three-month cap change right now is that consumers are faced with a hike in both October and January.

No wonder disgruntled households are joining the social media-driven Don’t Pay UK movement.

It’s hard to imagine energy prices moving anything but up as Europe heads into winter, demand intensifies and Vladimir Putin chooses to play hard.

Although the UK gets only 4 per cent of its energy from Russia – most of our energy comes from Norway, the North Sea and Qatar – no one has yet developed a system that separates us from global markets.

With wholesale gas prices about seven times higher than a year ago, the domestic cap is expected to be tightened by 70 per cent to £3,359 in October, with a further increase in January.

The pain will be excruciating and no one should underestimate the impact on the poorest of households. But as HM Treasury has pointed out, consumers will not be left without help.

A direct payment of £1,200 is available to the most vulnerable households and we all get a £400 rebate.

Should bills soar again in January, no government will be able to resist digging deeper to help. In Europe, ‘self-help’ has begun, with air conditioners being reset when temperatures are warmer, hot water thermostats being turned down and lights in shops and offices being turned off earlier. All of this will serve the CO2 reduction agenda.

Prime Minister’s favorite Liz Truss is opposed to the unexpected tax on the oil major’s ATMs. She might eventually be persuaded that recycling some of that money to the least affluent is the only sensible choice.

The tax could be quickly reversed if gas and fuel prices get rolling.

king coal

When former Glencore chief executive Ivan Glasenberg declared that his commodities trading and mining assembly would not follow the example of other miners like Rio Tinto by selling its coal assets, it looked like an odd decision.

His argument was that it would be better for a recognized mining company to gradually and responsibly withdraw the assets entirely from the public rather than sell them out of sight and out of sight to third parties.

How fancy does that look now. Coal prices have soared amid energy shortages and almost half of the group’s £15.2 billion first-half profits came from the black stuff.

Germany is one of the countries that have switched back to coal.

The result for shareholders, who have remained loyal to Glencore despite immense ethical and legal difficulties, is a huge payout in the form of dividends and £7bn in buybacks for the year.

And the outlook is good with the group’s exposure to desirable “green” metals like copper, cobalt, nickel and zinc. Quite a legacy for new boss Gary Nagle.

crypto prat case

Savers in BlackRock’s £8 trillion fund could only feel a little uneasy about the decision to allow struggling crypto exchange Coinbase on its tech investment platform Aladdin.

Not quite what one might expect from Larry Fink’s semi-politically correct approach to investing.


Alex Brummer: The energy price ceiling that no longer fits

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