Britons are bracing themselves for massive gas and electricity bills and the heat is on the Government, too. Yet this winter may not be as bad as many fear. Last month, Truss pledged to cap bills at an average of £2,500 per household, to protect us all from a winter energy shock. Her Energy Price Guarantee came into force on October 1, and could save the average house at least £1,000 a year.
Despite this health, tens of millions live in fear of their fuel bills, which will still be almost double last year’s £1,277 cap. Household finances are already at breaking point, as the cost of food, petrol and almost everything else rockets in the cost of living crisis.
The Energy Price Guarantee will also place a huge burden on Government finances, with energy consultancy Auxilione predicting average bills will hit £7,700 by the spring. Fears that the nation’s debt was out of control fuelled the backlash against Chancellor Kwasi Kwarteng’s mini-Budget.
If gas and electricity bills rocketed as expected, the energy cap could have added up to £150billion to the national debt. That’s a staggering figure.
In practice, the Energy Price Guarantee might not cost the government a single penny as natural gas prices are falling fast, according to new analysis from NatWest Markets.
It said that at current wholesale prices, the cost is already set to be half initial government estimates.
With prices set to fall further, household energy bills may fall below the £2,500 cap of their own accord.
This means Liz Truss will get the credit for her backstop, without having to pay for it. The nation’s finances would suddenly look a lot rosier, as would everybody else’s.
One reason prices are falling is that European countries have been successfully topping up their winter reserves, according to Gas Infrastructure Europe.
READ MORE: UK is in financial crisis but EU shouldn’t gloat – it’s next
Another reason natural gas prices are falling is that energy demand from Asia has dropped sharply, due to an economic slowdown in China as the property boom crashes and Covid lockdowns drag on.
Much still depends on war in Ukraine, where the Russians continue to lose ground. If Putin unleashes tactical nuclear weapons and the war intensifies, we enter unknown territory.
Despite these uncertainties, the position for the UK now looks better than just a few days ago.
Kwarteng’s mini-Budget u-turn last week has eased some of pressure on the pound.
Yields on 10-year gilts have steadied at around 4.25 percent, compared to more than 5.20 percent at the height of the recent panic.
The Conservative Party remains up to 30 points behind the Labour Party in the polls, which could lead to a wipe out at the next election.
However, attitudes could quickly change if the energy crisis does ease as predicted.
Truss could enjoy a massive winter reprieve as a result.
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