Two of the UK’s biggest energy suppliers have backed a plan being debated in the industry to come up with a fund that could freeze customers’ bills for two years.
British Gas owner Centrica and Octopus Energy are understood to be backing a scheme that would create a multi-billion pound facility to spread the cost of an emergency funding package over a decade, The guardian
Fellow suppliers ScottishPower and Eon have submitted plans to ministers for the “tariff shortfall fund” backed by a government guarantee.
Under the proposals, first reported by the Sunday Times, commercial banks would put cash into the state-backed fund, which suppliers could tap into to fund measures to freeze customers’ default rate bills at the current price cap, 1,971 £, for two years.
The cost of the scheme would then be paid back over a period of 10 to 15 years through a surcharge on bills or through taxes.
Centrica chief executive Chris O’Shea is understood to have backed the idea at a meeting between ministers and energy chiefs on Thursday last week.
Sources said the companies presented various solutions to raise funds to meet the bills to Boris Johnson, as well as the chancellor, Nadhim Zahawi, and the business secretary, Kwasi Kwarteng, at the meeting.
They would have to double the existing package announced by former chancellor Rishi Sunak, which will cut £400 from every household’s bills, or use government or private sector funds to freeze the price cap, with the creation of the deficit part of this option.
Octopus chief executive Greg Jackson told the Guardian that “urgent action” was needed and that the tariff deficit fund was among the options the government should consider taking.
He said: “Because of the war in Ukraine, the UK has to pay an extra £51bn for its gas, the equivalent of 9p of the basic rate of income tax.
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“Urgent action is needed to help people get through this winter, whether that’s a doubling of the existing government support scheme, a price cap freeze or a private sector initiative like the tariff deficit proposal.
“And we need a concerted effort to reduce the problem next winter through more efficiency, renewable energy, gas storage and market reform.”
A Centrica spokesman declined to comment on discussions with the government, but said: “It is clear that significant intervention is needed to protect customers. Many ideas are being discussed, but each needs to be carefully assessed by to ensure that it is in the long-term interest of the client and to avoid unintended consequences.”
The approval of two providers with more than 10 million customers combined adds significant weight to the deficit plan’s recovery momentum.
The initiative echoes similar financial support introduced during the pandemic, when the government backed emergency loans for businesses.
Barclays and NatWest are understood to have examined previous plans to introduce a similar scheme earlier this year.
ScottishPower chief executive Keith Anderson proposed a similar plan in the spring, but Sunak opted instead to use a windfall tax on North Sea oil and gas operators to fund part of his £15bn support package .
Labor leader Keir Starmer has proposed an increased tax on windfalls as part of a £29bn plan to prevent people from paying “one more penny” on their fuel bills this winter.
Industry executives said the Tories, currently locked in a leadership contest between Sunak and Liz Truss, needed to act quickly to ensure support measures were introduced before higher bills hit this autumn.
Energy regulator Ofgem is due to announce the level of the price cap on August 26. The new limit, estimated at £3,582, will be introduced on 1 October.
“This gives us 35 days to send price change notices to customers and implement the new cap into our system. The longer the government leaves it, the more confusion there will be. The carnage could be extreme,” said the chief executive. from a supplier.