Government in discussions over rise in energy price cap, says minister

Business minister gives clearest indication yet that cap on gas and electricity prices may have to rise

Boris Johnson’s government is holding talks with energy regulator Ofgem about whether a cap on gas and electricity prices for consumers may have to go up, a junior minister has said.

The energy price cap imposes limits on costs for 11 million people on default tariffs – but struggling energy firms want it scrapped so they can pass on higher gas prices to customers.

“We’ve had lots of conversations ... with companies themselves, with Ofgem, in reviewing that price cap we clearly want to protect customers,” business minister Paul Scully told Sky News on Thursday.

Although the government has resisted calls to ditch the price cap, Mr Scully conceded there were “pressures” on the current price limit set by the regulator due to soaring wholesale gas costs.

Asked what the worst-case scenario was for a rise in the price cap, the minister said: “This is all part of the conversations that Ofgem will set that cap at, because supply prices are based on a number of factors.”

The government is preparing for the “worst-case” scenario of gas costs remaining high beyond just a “short spike”, Mr Scully added. “We need to make sure we are planning for the worst-case scenario, because we want to make sure we can protect consumers.”

The price cap is due to rise to 12 per cent at the start of October to £1,277 pounds for a household using an average amount of energy, and would in normal circumstances be reviewed again in April 2022.

The wholesale price of gas has soared in recent weeks, putting increasing pressure on Britain’s energy suppliers, who want the cap to be lifted.

Avro Energy and Green stopped trading on Wednesday – affecting more than 800,000 customers – and Ofgem has warned that other firms will follow in the weeks ahead.

Despite calls to ditch the price cap to help firms at risk during the crisis, business secretary Kwasi Kwarteng said it would be “staying” and the government would not be bailing out energy firms.

“I have absolutely rebuffed that. I’ve said the price cap is here to stay,” the minister told MPs on the energy and business select committee on Thursday.

Despite previous assurances from the business secretary, Mr Scully said the government could not guarantee that consumers could keep the terms of their previous tariff if their supplier goes bust.

Earlier this week Mr Kwarteng said he thought those being transferred to new providers would “be expected to pay the same amount”.

But on Thursday Mr Scully told Times Radio: “No, that’s not going to be possible in terms of a guarantee. What we’ll have though is security.”

He said customers “don’t need to do anything because their transfer will be made directly through the Ofgem scheme, making sure that they have a company looking after them, supplying their energy”.

Meanwhile, Mr Scully denied that the country is heading back into a 1970s-style “winter of discontent” when the economy was brought to its knees by power cuts and price rises.

Asked by Times Radio if a winter of discontent with empty shelves, power cuts and rising living costs was looming, the small business minister said: “No. Look this isn’t a 1970s thing at all. I don’t recognise that."

“We need to build resilience back into the economy in some of these areas,” he added. “There is not need for people to go out and panic buy.”

Tesco bosses reportedly told government officials last week that the shortage of truck drivers would lead to panic-buying in the run up to Christmas if action was not taken to hire more hauliers from overseas.

But Mr Scully said offering visas to overseas drivers would not solve the problem, claiming shortages were being felt across Europe, and the government was looking to other options instead.

“There are hundreds of thousands of people in the country that have HGV licences, either full or partial, that are not working at the moment,” he said.