Government extends energy bill cap by three months ahead of ‘budget for growth’ – business live

Introduction: Energy support capping bills at £2,500 to be extended by three months

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK government has extended its support for households on their energy bills, following pressure not to push up bills and plunge many thousands of families into poverty.

Hours before Jeremy Hunt is due to announce the budget today, the Treasury has performed a U-turn and confirmed that the energy price guarantee will continue at its current rate until the end of June.

The EPG, which limits a typical annual household bill to £2,500, had been due to rise to £3,000 per year at the end of April.

Announcing the move this morning, the Treasury points out that energy bills are set to fall from July, due to the drop in wholesale price.

Chancellor Jeremy Hunt says:

“High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.

The about turn had been widely expected, and will relieve some pressure on households already struggling the cost of living.

Hunt had faced pressure from campaigners, charities and the consumer champion Martin Lewis to extend the EPG support. Citizens Advice had warned that without further support, milllions of households would have faced ‘catastrophe’ from April.

New – the Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June.

With energy bills set to fall from July, this change will bridge the gap, easing the pressure on families. pic.twitter.com/QjqEGciM9C

— HM Treasury (@hmtreasury) March 15, 2023

Hunt will deliver the budget at 12.30pm, outlining the government’s tax and spending plans.

It will be billed as a “Budget for growth”, and include measure designed to help more people into work.

It’s expected to include a £4bn expansion of free childcare for one- and two-year-olds in England. This which will provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three year-olds.

New measure to encourage business investment, and offset some tax changes taking effect in April that will hit firms, are also expected.

Hunt has been examining whether to replace the super-deduction with a new “full expensing” system, which would let 100% of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.

But the chancellor could also face a Tory back-bench revolt over the Budget as he pushes ahead with a rise in corporation tax from 19% to 25%.

The Daily Telegraph reports there is a growing backlash, with Conservative MPs fearing a “chilling effect on the whole economy” if the rise is not abandoned.

Tomorrow’s Budget coincides with the Cheltenham racing festival – some Tories claimed that such a clash ought to be a resigning issue for Gordon Brown when it occurred back in 2004 … pic.twitter.com/VoXgCJgAVW

— James Heale (@JAHeale) March 14, 2023

The agenda

  • 9am GMT: IEA’s monthly report on the oil market

  • 12.30pm GMT: Jeremy Hunt to deliver the Budget

  • 12.30pm GMT: US PPI producer price inflation report

  • 1.30pm GMT: Office for Budget Responsibility publishes its UK Economic and Fiscal Outlook

Key events

China reopening and air travel rebound to supercharge oil demand

In other energy news, China relaxation of Covid-19 restrictions and the rebound of air travel will boost oil demand this year, a new report shows.

The International Energy Agency’s monthly analysis shows that global oil demand has edged up slowly so far this year, but will accelerate through 2023.

The Paris-based agency said in its monthly oil report that:

“Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang.”

Oil demand fell by 80,000 barrels per day in the final quarter of 2022, but is “set to accelerate sharply over the course of 2023”, the IEA says. Growth is set to rise from 710,000 barrels/day in the first quarter of this year, to 2.6 million barrels/day in October-December.

Global oil demand is expected to reach a record 102 million barrels per day this year, the IEA adds, as “rebounding air traffic and the release of pent-up Chinese demand dominate the recovery.”

Crude prices, though, are near their lowest since December, with Brent crude around $78 per barrel thoday.

The IEA says:

“Prices fell a further $3/bbl in March as macroeconomic worries escalated following the collapse of Silicon Valley Bank.”

The report also shows the impact of sanctions on Russia’s energy sales – with exports down over 40% in February.

Russian oil exports fell by 500 kb/d to 7.5 mb/d in February as the EU embargo on refined oil products came into force. Shipments to the EU fell by 800 kb/d to 600 kb/d, compared with more than 4 mb/d at the start of 2022.

Sailings to China and India also fell, while cargoes without a destination surged by 600 kb/d to 800 kb/d. Export revenues plunged another $2.7 bn to $11.6 bn, down 42% on a year-ago.

FTSE 100 down 1% ahead of budget

The crisis in the US banking sector casts a shadow over the budget today.

With three US banks having failed this month – Silvergate, Signature and Silicon Valley Bank – investors have been fretting that there could be further casualties.

The failure of SVB is not great optics for Jeremy Hunt’s push to make the UK the “next Silicon Valley”.

According to Bloomberg, it has even “ignited a debate” within the UK government over whether to include the words “Silicon Valley” in Hunt’s budget statement today.

The mood in the City is sombre this morning, with the FTSE 100 index of blue-chip shares down 1% or 76 points at 7560.

Victoria Scholar, head of investment at interactive investor, says,

The Chancellor Jeremy Hunt wants today’s Budget to be boring, in stark contrast to the fiscal fiasco around the mini-budget last September. The UK is undeniably facing a tough economic backdrop with sky-high inflation, sluggish growth, the cost-of-living crisis and the war in Ukraine.

However, the economic outlook has improved in recent months with the UK managing to narrowly stave off a recession, the public purse logging an unexpected surplus in January and other indicators such as consumer confidence, PMIs and retail sales improving.

The government is unlikely to carry out drastic spending increases or tax cuts because of the backdrop of inflation as well as the hangover from heavy spending during the pandemic on expensive programmes like the vaccine rollout, the furlough scheme and track and trace. Instead, Hunt will try to focus on fiscal prudence while still providing enough support measures to prop up the Conservatives’ popularity at a time when Labour is steaming ahead in the polls.

All eyes were supposed to be on the Budget this week but the collapse of Silicon Valley Bank with concerns about financial contagion has superseded the famous red box. It has been a volatile week for financial markets as investors weigh up the negative economic impact from the bank’s failure versus the prospect of more accommodative monetary policy from the Bank of England and the Federal Reserve.

Dame Clare Moriarty, chief executive of Citizens Advice, says keeping the Energy Price Guarantee at £2,500 is “a welcome step”, but adds that “unfortunately it’s not all good news” for households struggling to pay their bills.

The withdrawal of the Energy Bill Support Scheme will still mean the average monthly bill rises by £67 from April.

“With millions already unable to afford their bills and energy prices set to remain high in the years ahead, the government must now look at long-term solutions to this problem.

Many people, especially those on low incomes, will need ongoing support not only to pay their bills but to make their homes safer and warmer through improved energy efficiency.”

What to expect from Hunt’s spring budget

The UK’s Office for Budget Responsibility is expected to hand Jeremy Hunt more attractive economic forecasts than at the autumn statement last November.

The OBR is expected to cut its inflation forecast for this year from 7% to nearer 4% and to provide a sunnier picture of economic growth, revising the projected fall from 1.4% to nearer 0.5%, my colleague Phillip Inman explains.

It is also expected to say that the spending deficit improved after a rise in tax receipts, mainly due to higher than expected inflation over the last year. Hunt could have as much as £30bn spare and still bring down borrowing over the life of the forecast, though he is likely to bank most of it, keeping aside a war chest to spend before next year’s general election.

Measures expected to be announced today, on top of the energy support, include:

  • An increase in the tax-free lifetime allowance (LTA) on pension savings, which could rise from £1.07m to as much as £1.8m, to try to discourage the over-50s from retiring early.

  • 30 hours of free childcare for one- and two-year-olds and a boost to funding for existing provision for three-year-olds.

  • Paying childcare support to parents on Universal Credit upfront, rather than in arrears, and increasing the amount they can claim.

  • A ramping-up of sanctions for claimants who do not look for or take up employment.

  • The creation of 12 investment zones – eight in England, four in Scotland, Wales and Northern Ireland, benefiting from tax breaks, each backed by £80 million over five years.

  • Some £63m of money to help leisure centres with swimming pools meet energy costs and become more efficient.

Keeping the Energy Price Guarantee at £2,500, instead of lifting it to £3,000 in April, will be a huge relief for millions of people, says Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Many households are already struggling to pay their bills and were facing the threat of more price rises, she explains:

The freezing of the guarantee was always going to be more likely when the falling wholesale cost of energy meant it was set to cost £5bn less than forecast.

But the loss of the monthly discount from April will still be felt and already almost half of people are finding it difficult to pay their energy bills.

However, if energy cost continue to fall as they have been, people should start feeling the benefit by around July.

Richard Neudegg, director of regulation at Uswitch.com, reckons the EPG may only be relevant for another three months.

“While energy costs are still historically high, wholesale prices are thankfully now turning a corner and we’re getting close to the point when consumers can not just benefit from the status quo, but actually see lower costs on their bill.

“The Energy Price Guarantee may only be relevant for another three months. If wholesale prices continue to drop, the next price cap in July could be cheaper, meaning we’ll go back to Ofgem dictating default tariff prices every quarter.

Households are still expected to feel an increased impact from energy costs from April, though.

A separate voucher scheme, which sends £66 per month to every household, is still due to come to an end of this month. This Energy Bills Support Scheme (EBSS) saved households £400 on their energy bills last winter.

Chancellor to end the prepayment meter premium

Jeremy Hunt is also expected to end the UK’s “prepayment meter premium” today.

Currently, customers on pay-as-you-go meters currently pay more on average than direct debit customers, which is an added burden for many low-income households.

Today’s budget will end this energy premium, the Treasury says, “saving four million families £45 a year from July”.

Energy firms charge those pay-as-you-go meter customers more because it typically costs more to serve them, which is reflected in the regulated price cap, explains Emma Pinchbeck, the chief executive of industry body Energy UK.

She has welcomed today’s announcement:

The decision to extend the Energy Price Guarantee is good: keeping average bills at £2.5k rather than allowing them to rise to £3k. Also sensible to level PPM tariffs. These are things industry has called on Gov to do @BBCr4today

— Emma Pinchbeck (@ELPinchbeck) March 15, 2023

Wholesale prices are falling and expect price cap to be below £2.5k by year end. Although £2k energy bills are still historically high.

Other energy bill support IS ending, so should note bills will still be go up for many (up to 45% for some).

— Emma Pinchbeck (@ELPinchbeck) March 15, 2023

Meanwhile the long term solution to the energy crisis for the UK is to reduce dependence on volatile gas prices. The £20bn trailed for H2, CCUS, SMRs is good but in Budget we also want investment allowances for renewables, and lower taxes on energy saving & green tech for homes

— Emma Pinchbeck (@ELPinchbeck) March 15, 2023

Keeping the energy price guarantee at its current level of £2,5000 from April to June will protect households from Ofgem’s price cap.

The Ofgem price cap, which limits how much energy firms can charge, will drop to £3,280 in April, from £4,279 for the January-to-March quarter. But the EPG effectively overrides this for households.

Ofgem’s price cap is forecast to fall again in July – with consultancy Cornwall Insight’s data indicating it could drop to £2,100/year for an average household in the summer.

The Treasury explains how falling wholesale energy prices have helped cushion the cost of the support:

At Autumn Statement the Chancellor announced that the EPG was due to rise to £3,000 on April 1, with the Government then expecting to borrow £12 billion to fund this support.

Since then, energy prices have fallen by 50%, cutting the borrowing needed to fund energy support by two- thirds to £4 billion.

Sunak: maintaining energy price guarantee will give peace of mind

The three-month extension of the energy price guarantee (EPG) at its current £2,500 level will save a typical household around £160, the Government says.

Prime Minister Rishi Sunak said:

“We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall.

“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

[It’s important to remember that the EPG caps the unit cost of energy, not the total bill]

Introduction: Energy support capping bills at £2,500 to be extended by three months

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK government has extended its support for households on their energy bills, following pressure not to push up bills and plunge many thousands of families into poverty.

Hours before Jeremy Hunt is due to announce the budget today, the Treasury has performed a U-turn and confirmed that the energy price guarantee will continue at its current rate until the end of June.

The EPG, which limits a typical annual household bill to £2,500, had been due to rise to £3,000 per year at the end of April.

Announcing the move this morning, the Treasury points out that energy bills are set to fall from July, due to the drop in wholesale price.

Chancellor Jeremy Hunt says:

“High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.

The about turn had been widely expected, and will relieve some pressure on households already struggling the cost of living.

Hunt had faced pressure from campaigners, charities and the consumer champion Martin Lewis to extend the EPG support. Citizens Advice had warned that without further support, milllions of households would have faced ‘catastrophe’ from April.

New – the Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June.

With energy bills set to fall from July, this change will bridge the gap, easing the pressure on families. pic.twitter.com/QjqEGciM9C

— HM Treasury (@hmtreasury) March 15, 2023

Hunt will deliver the budget at 12.30pm, outlining the government’s tax and spending plans.

It will be billed as a “Budget for growth”, and include measure designed to help more people into work.

It’s expected to include a £4bn expansion of free childcare for one- and two-year-olds in England. This which will provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three year-olds.

New measure to encourage business investment, and offset some tax changes taking effect in April that will hit firms, are also expected.

Hunt has been examining whether to replace the super-deduction with a new “full expensing” system, which would let 100% of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.

But the chancellor could also face a Tory back-bench revolt over the Budget as he pushes ahead with a rise in corporation tax from 19% to 25%.

The Daily Telegraph reports there is a growing backlash, with Conservative MPs fearing a “chilling effect on the whole economy” if the rise is not abandoned.

Tomorrow’s Budget coincides with the Cheltenham racing festival – some Tories claimed that such a clash ought to be a resigning issue for Gordon Brown when it occurred back in 2004 … pic.twitter.com/VoXgCJgAVW

— James Heale (@JAHeale) March 14, 2023

The agenda

  • 9am GMT: IEA’s monthly report on the oil market

  • 12.30pm GMT: Jeremy Hunt to deliver the Budget

  • 12.30pm GMT: US PPI producer price inflation report

  • 1.30pm GMT: Office for Budget Responsibility publishes its UK Economic and Fiscal Outlook

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