Energy customers risk being bundled together with £4,000 fixed tariffs

Beleaguered households face fixed-price energy tariffs costing up to £4,000 a year under proposed ‘unsustainable’ price cap hikes this spring.

Prime Minister Boris Johnson is set to announce new measures to help consumers facing rising energy bills in the coming weeks, and would take part in meetings on the crisis this week.

On Monday, Mr Johnson said ministers understood the difficulties people were facing and assured the government was ‘certainly looking at what we can do’.

A fixed annual energy tariff for a typical household now costs nearly £2,500, according to recent data from comparison website Uswitch.com.

Expensive: Struggling energy customers face fixed price tariffs that can cost up to £4,000 a year

This average annual fixed price of £2,500 is £500 a year higher than the £2,000 level at which energy regulator Ofgem is expected to raise the variable price cap in April.

Ovo Energy, the UK’s second biggest energy supplier, previously offered a fixed rate deal of just under £4,200 over the festive period. It has since lowered its prices to consumers. The most expensive fixed deal today comes from Outfox the Market at over £3,500 for the year, an expert told This is Money.

Martin Young, energy analyst at Investec, told the Telegraph the numbers were “staggering”, but he thinks energy prices will remain high or rise further this year.

He said: “Between the end of November and last week, fixed price offers have surged.

“If you now come to a situation where even well-hedged providers are facing these kinds of issues, it’s clear that the price cap itself has structural issues.”

In recent months, the cap on energy prices has lagged behind the spike in gasoline prices, generally protecting consumers from huge price hikes but forcing suppliers to sell energy at a loss.

It is expected to rise from £1,277 to £2,000 in the spring, but if fixed offers remain more expensive and households choose to stay on variable tariffs covered by the cap, providers could come under ever-increasing financial pressure.

Mr Young told the Telegraph: ‘If you now come to a situation where even well-hedged providers are facing these sorts of issues, then clearly the price cap itself has structural issues.’

Lost jobs?  The Unite union today issued a warning over the potential for massive job cuts in the energy sector

Lost jobs? The Unite union today issued a warning over the potential for massive job cuts in the energy sector

He said that because the cap is updated every six months, it is “for all intents and purposes a fixed six-month deal.”

As a result, Mr Young thinks suppliers could be left behind if they pre-purchase power for variable-rate customers only to have them leave when cheaper fixed deals become available.

In a bid to improve the sector’s financial performance, Ofgem is set to attempt stress tests on energy suppliers after the recent spate of bankruptcies.

Corn, Richard Neudegg, head of regulation at Uswitch, thinks it’s too little, too late, and more needs to be done to help consumers and tackle price caps.

Mr Neudegg said: “Introducing financial stress tests after 26 energy suppliers left the market feels like the very definition of closing the stable door after the horses have run away.

“Financial tests should have been used to identify suppliers that were ill-equipped to deal with the shocks that rocked the market. Although necessary for the future, these proposals clearly come too late to help the current crisis.

“Ofgem’s priority now must be to build a resilient market that can withstand any future shocks.”

He added: “How the price cap works has also been a major factor in the current energy crisis.

“It is currently delaying the transmission of the full shock to the system for consumers, but the regulator cannot prevent this from happening in April.

The Resolution Foundation think tank has warned of a ‘cost of living catastrophe’, with household spending set to rise by £1,200 a year, around half of which is added to utility bills energy, and the rest comes from other costs, including inflation and tax cuts.

Last month, Business Secretary Kwasi Kwarteng reportedly met individually with the energy bosses of the UK’s biggest energy suppliers about twice each in the week before Christmas.

Some Tory MPs want cuts to green levies and VAT to help lower bills. Labour, who also want the VAT suspended, are also demanding higher taxes for oil and gas producers.

Massive job cuts in the sector are looming?

The Unite union also today issued a warning about the potential for massive job cuts in the energy sector.

The union estimates that over the next six months some major energy companies are considering drastic job cuts combined with further pay cuts and attacks on terms and conditions, such as pension payments.

Sharon Graham, Unite’s general secretary, said: “Our intelligence suggests that if the government does not intervene in the energy crisis, tens of thousands of jobs could disappear before the summer.”

“We know of an energy supplier which is to announce job cuts of 20% in its workforce. And there are many more lining up behind them.

She added: ‘How long is the government going to be a bystander in this coming jobs crisis? We need the government to step in with a support package to save jobs for the industry, and we need it now. We refuse to let workers bear the brunt of a crisis that is not of their making.

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