For months, a tsunami of high energy costs has hit Europe. The first big waves crashed ashore in Britain on Friday, with news that household gas and electricity bills will almost double in October.
The announcement, from Britain’s energy regulator, raised the specter of a humanitarian crisis in one of the world’s richest countries: Millions of Britons may not be able to afford to heat or light their homes. their homes this winter, unless the government intervenes on a large scale to cushion them from the vagaries of the market. He also shook up British politics in the final days of a bitter crisis he fought in the campaign to replace Prime Minister Boris Johnson.
The country appears surprisingly unprepared for a looming crisis since Russia rocked global energy markets by cutting the flow of natural gas to Germany and other European countries. The scale of the increase caught many off guard: a typical British household would pay £3,549 (about $4,200) over a year for electricity and natural gas, up from £1,971 today.
“It’s an economic war,” said David Howell, a former Conservative energy minister. When a new government takes power in September, he said, it will need to provide between £20bn and £30bn to help up to 15m vulnerable households. “That hangs over the new prime minister,” said Mr. Howell. The fallout from Russia’s gas cuts, which were retaliation against the West for imposing sanctions after its troops invaded Ukraine, will ripple across the continent, raising the cost of the war in different ways in different countries, depending on how much they depend on Russian energy.
But with leaders from London to Berlin mounting costly state interventions, it portends a reversal of decades of liberalizing energy markets. France has capped gas and electricity rates, subsidized the cost of gasoline and diesel, and spent 45 billion euros ($45 billion) to help the hardest-hit families.
Germany has moved to take control of its energy markets, subsidizing new liquefied gas import terminals and bailing out one of its biggest utilities, Uniper, when it ran into financial trouble after the Russian energy giant Gazprom broke gas supply contracts. it accounts for roughly 40 percent of electricity generation but has a disproportionate effect on its cost, the price jump announced Friday following a 54 percent increase in April.
It will affect about 24 million households. “This will be devastating for many families,” Jonathan Brearley, chief executive of the regulator, Ofgem, told the BBC. “The hard news I have to give today is that prices seem to be continuing to rise.” Higher household energy prices are on top of sharp increases in food and fuel prices. Greg Jackson, the chief executive of renewable energy company Octopus Energy, has pointed out that if the price of beer had risen as much as that of natural gas in the past year, a pint in a pub would cost £25, or about $30. .“How can you adapt to a promotion like this?” said Tewdos Gebreysus, a 35-year-old Uber driver in London, who said he was now paying four times more on his energy bills than at the beginning of the year.
With two small children, Mr. Gebreysus said she was starting to worry about how she would keep them warm when the weather turned colder. To make ends meet, he has started driving more hours and is juggling a second job. “I don’t know whether to cry or scream,” she said with a sigh. Nikkie Blackwell, 52, who lives on government assistance in south London, said she would cut down on the use of her washing machine and choose ready-to-eat meals for the microwave to try to reduce your energy bills.
But she said she feared the monthly bill would be more than she received in social benefits. “No one wants to help,” said Ms. Blackwell. Consumer prices in Britain rose 10.1 percent last month from a year earlier, the fastest pace in 40 years, tightening family budgets. Credit… Alice Zoo for The New York Times News of the price hikes came at a time of deep political drift in Britain, with Mr. Johnson preparing to leave office and his Conservative Party worried about the contest to replace him. Johnson has left it to his successor to craft a response to rising energy costs.
The front-runner to replace him, Liz Truss, has promised specific help to help those most affected by higher bills, although she has flatly refused to elaborate his plans She and her opponent, Rishi Sunak, reject stronger measures, such as using state subsidies to freeze the energy price cap for two years by Ofgem on the next energy price cap,” Ms Truss wrote in The Daily Mail on Friday. “The rest of Europe faces the same challenge, which will increase as winter approaches.” But at a campaign meeting with Mr. Sunak on Thursday, he said the solution to the crisis was not to carelessly throw more money at consumers. Mr. Sunak, who has proposed cutting the value-added tax on energy bills , warned that without drastic action, “there is a high risk that millions of people will fall into poverty.” countries.
But the structure of their energy market makes it extremely sensitive to fluctuations in the natural gas market price. It has also suffered worse inflation than other major European countries, with consumer prices rising 10.1 percent last month from a year earlier, the fastest pace in 40 years, as household budgets come under pressure.
The Bank of England has predicted that inflation will arrive to a peak of 13 percent in October as new energy prices add to household bills. Other estimates are higher; analysts at Citibank have said the rate could reach as high as 18 percent early next year. “The pressure on extended households will only intensify and the calls for support will become louder and louder,” Martin Young, utilities analyst at Investec, a utilities company, wrote in a recent note to clients. Mr. Young expects another jump, to £4,210, in January Price rises, and how to deal with them, have become a hot topic of political discourse in Britain and across Europe.
The British government has offered a package including £400 per household to help residents with rising bills, but politicians, consumer advocates and energy executives now say stronger intervention is needed to cushion households from rising costs. energy costs. Britain’s opposition Labor Party recently proposed freezing energy tariffs where they are now, paying part of the £29 billion in so-called windfall taxes the Conservative government imposed this year on the oil and gas giants that operate in the North Sea. The main component of Ofgem’s calculations assumed a doubling of wholesale electricity and natural gas costs. These represent about 70 percent of the new price cap.
Dealing with increases of this magnitude is beyond the remit of Ofgem, whose role is to protect consumers from predatory suppliers, Brearley said. “What is clear to me is that the Prime Minister and his ministerial team will have to act urgently and decisively to address this,” said Mr. Brearley. “The outlook for the winter without any action looks very difficult.” The leadership contest has been dominated by the promise of Ms. Tax cut package, which is very popular among the grassroots members of the Conservative Party who will vote in the next prime minister But economists say it would do little to protect the most vulnerable from the ravages of energy bills. With the sharp rise in prices looming in October, public outcry over energy costs is likely to haunt the next prime minister. Unless the government develops an effective response, some analysts said, the issue could paralyze the government and tip the next election to the Labor Party.
The peculiar nature of Britain’s price cap system, analysts say, also amplifies the sticker shock of rising increases. We have kind of a worst-of-both-worlds system,” said Jonathan Portes, professor of economics and public policy at Kings College London. “House prices are linked to the spot market, and we save for price rises and we pour them into homes at the same time.” Beyond the mechanics of the system, critics said Britain had lagged behind Germany and other European countries in urging people to cut energy use and make their homes and offices more efficient Germany, for example, has offered people a €9 monthly ticket on public transport to encourage them not to use the car. The program has reduced car journeys by an estimated 10 per cent and could encourage more people to off the roads if a long-term plan for these tickets were brought in. “That’s the poverty of our policy,” said Tom Burke, president of E3G, an environmental think tank and former government adviser. “You have to do a fine job step in to address short-term costs, and then you have to really push for long-term demand reduction.” and Constant Méheut of Paris.