Rishi Sunak last month merely claimed to be “taking the sting out” of the sharp rise in energy bills that will apply from the start of April. He was wise not to make a grander boast. Six weeks on, his £9bn support package, which in any case involved a fiddle with a £200 “rebate” that isn’t really a rebate because it is repayable later, looks grossly unequal to the size of the energy challenge.
The first problem is the one highlighted by Gordon Brown, the former prime minister, and more than 70 Labour local government leaders today: the number of households in fuel poverty, defined as those spending at least 10% of their net income on energy, will rise from 4.7 million to almost 8 million next month.
That figure, note, is calculated after adjusting for Sunak’s measures that offered straightforward support: the £150 reduction for council tax payers in bands A and D, for example, and the widening of the eligibility for the warm homes discount. In other words, the sting will still be severe for low-income households.
Brown and co suggest a series of responses, including capping next month’s national insurance increase, restoring the £20-a-week increase in universal credit and uprating benefits in line with inflation. All should be on the table in the spring statement.
The second problem, though, is potentially enormous: when the energy price cap is next revised in October, the mechanical model is likely to spit out a truly astronomical figure. Barring a rapid and miraculous plunge in wholesale gas prices, the next cap is currently projected by analysts to come out at close to £3,000. That would make April’s £1,971, seen as shocking when regulator Ofgem published it last month, feel almost gentle.
It’s obviously not Sunak’s fault that gas prices have soared (again) after Russia’s invasion of Ukraine, but the chancellor looks to have assembled his original £9bn support package on the hopeful premise that something like “normal” energy prices would return in time for next winter and that a muddle-through approach would suffice during the summer months of low consumption.
It’s time to abandon such wishful thinking. More artful fiddles with “rebates” will not cut it. Nor would further expansion of eligibility for the warm homes scheme – extending a £150-a-year discount to more people is little more than tokenism if the price cap ends up being hiked by another £1,000.
Universal credit is the most direct and effective means to boost support, and is the obvious policy tool to use. Alternatively, lift benefits, currently due to rise by only 3.1%, or raise national insurance thresholds, or a combination of the above. The important thing is to signal action in response to an energy crisis that is only intensifying. The original bits-and-pieces support package for low-income households is out of date already. It needs a complete re-design.
Fever-Tree and TRG face up to higher input costs
Inflation is upon us – especially in companies’ use of the phrase “mitigating actions”. Fever-Tree, the tonic firm, and the Restaurant Group, owner of the Wagamama and Frankie & Benny’s chains, sprinkled the words across their results statements on Wednesday as they faced up to higher input costs. Both, however, left the impression that mitigation will only get you so far.
The commodity prices that bother Fever-Tree are primarily aluminium for cans and glass for bottles. The firm can move some production to local markets and try to duck a few logistics costs, but “significant uncertainty in relation to input costs” translated to a downgrade of approximately £6m in the top-line profit forecast (now £63m-£66m) for 2022. That’s despite the revenue line continuing to skip along nicely as Fever-Tree makes waves in the US. Shareholders got a £50m special dividend to ease the slimline feeling.
Over at TRG, the mitigating actions sounded like things the company would do anyway – tweak the “labour deployment model” to take account of dine-in versus takeaway trends, and have a chat with suppliers to see if there are volume-related deals to be done.
The group predicted cost inflation in food and drink of 5%-plus, which sounded almost benign until it added that the calculation was before “any consequential inflationary impacts arising from the conflict in Ukraine”. Well, yes, that is the big unknown for the entire food industry. Managements, like the rest of us, don’t have a clear idea of what to expect.
