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Will energy profits be raided again to save consumers?

·2-min read
Is another windfall tax coming? (PA Wire)
Is another windfall tax coming? (PA Wire)

A week today the great brains at Ofgem will hand down the results of their number crunching on the October energy price cap. It will make alarming reading.

The energy cap mechanism was set up by Theresa May to protect consumers who did not shop around from “rip-off” energy suppliers. It was not designed to cope with today’s extraordinary market conditions.

In the run-up to Ofgem’s announcements the wholesale gas price — the biggest single determinant of the retail cap — has been charging up towards new record levels. Since the start of the month the September contract has soared more than a pound, or 31%, from 349p a therm to today’s 459p.

That is dangerously close to the £5 peak the market flirted with in March in the early days of Russia’s invasion of Ukraine. Wholesale gas prices are now 13 times the level they were just two years ago in the pre-energy-crisis world.

The situation is not helped by slack winds over the summer that stopped turbines from turning, and low water levels in the Rhine that have disrupted supplies of coal to German power stations.

Even the falling oil price is not helping as much as it should due to the surging value of the dollar.

But all consumers want to know is how much are they going to have to pay — and what is the Government going to do about it?

On the former, average bills will go up by about 80% or perhaps £1,500 from the current ceiling of just under £2,000 on October 1, according to projections from Joe Malinowski, energy analyst and founder of comparison website TheEnergyShop.com.

The Government’s package of relief will have to be massively reinforced. But as the borrowing figures show today, scope for an extra bail-out from taxpayers is limited.

The industry has already been tapped once through the windfall tax. How long will the new PM be able to hold out before once again raiding the sector’s rapidly-filling profits piggybank?

@JonPrynn