Given the scale of the cost challenges faced by consumers and the business community, the Energy Plans announced by the Prime Minister on 8 September 2022 are a welcome short- term relief for consumers and business alike. Clearly, there is a need for immediate action ahead of this winter on price and demand measures, but PwC’s view is that medium-term reforms of the electricity market are equally important to deliver a robust solution for energy security and affordability by reducing our long-term reliance on fossil fuels through the net zero transition.
As set out in our UK Economic Outlook, PwC expects the effect of high energy prices to have a detrimental impact on the UK economy for the next few years. A plan to support the economy, both to transition away from high prices and into a more sustainable environment for energy for consumers and businesses alike, is critical.
Targeting energy prices directly by the proposed Energy Price Guarantee (EPG) and Energy Bill Relief Scheme (EBRS) will have the benefit of reducing the short-term peak in inflation. We estimate that the targeted price measures will reduce inflation from the previously estimated peak of around 17%, without this intervention to around 11%, broadly in line with the government's own estimate of a 5pt curb in inflation. PwC intends to update the UK Economic Outlook Report to reflect headlines on inflation and interest rates once we have further information.
While dampening inflationary pressures, government interventions will however come at a cost. PwC estimated the cost of government support offered through the Energy Price Guarantee (EPG) at the time of the announcement to total around £130bn over the two year period from 01 October 2022. The positive correlation between scheme costs and the price of electricity and gas futures, which have subsequently fallen since 08 September, means that estimates of these costs will now be lower. We have also provided guidance on the recent business announcements for business support packages made on 21 September.
A summary of the proposals and initial analysis and key considerations can be viewed below.
Please check back following the Fiscal announcement on 23 September to view our second briefing, which will include an update on the business measures now announced, further detail on the consumer packages and commentary on wider European measures.
Contact us
Follow us
