NatWest and Barclays are in talks with regulators to provide loans that would allow energy suppliers to spread out the costs of taking on the customers of failed rivals, and thereby partially mitigate an impending big spike in household gas and electricity bills this year.
So far 26 energy suppliers have collapsed in the past five months due to soaring wholesale gas and prices — part of a wider “cost of living crisis” that poses a major challenge for prime minister Boris Johnson.
Analysts estimate millions of households’ annual energy bills could rise by more than £700 after a price cap is adjusted upwards in April by industry regulator Ofgem to reflect the higher wholesale prices. But the loans proposal by the watchdog might provide consumers with savings of about £70.
Ofgem in December proposed a third-party financing scheme for energy suppliers taking on the customers of failed rivals.
Under Ofgem’s proposal, bank finance would allow energy companies to spread the expense of absorbing new customers over an extended period of time — rather than have those costs fall on to consumer bills this year.
Companies that have rescued the customers of failed suppliers are entitled to recoup their costs through an industry levy overseen by Ofgem and which goes on consumers’ bills.
NatWest and Barclays are in discussions with Ofgem, according to people briefed on the situation, and the regulator is also talking to other lenders about potentially taking part in the scheme. Both banks declined to comment.
Although NatWest is still majority-owned by taxpayers, government officials insisted the process was being run by Ofgem, with no interference from ministers.
Ofgem, which has launched a consultation on its third-party financing scheme, said: “We are continuing to work with the industry and several interested parties to deliver the proposals set out . . . last week.”
Separate talks are taking place between the Treasury, the business department and energy industry executives on ways to protect households from a rise in bills which Investec analysts have calculated amounts to £18bn on a combined basis in 2022.
Options include a cut in value added tax on energy bills, or an increase in the warm homes discount for low-income households.
Meanwhile Johnson and chancellor Rishi Sunak on Thursday joined forces to quash calls by a senior minister to scrap a planned £12bn national insurance rise in April, which is intended to fund the NHS and social care.
Jacob Rees-Mogg, leader of the House of Commons, told Johnson’s cabinet on Wednesday the rise should be aborted, saying it could not be justified at a time of surging inflation and soaring energy bills.
The planned increase in national insurance, coupled with a freeze to income tax thresholds, will cost a typical household £600 a year.
But Downing Street said there were “no plans” to delay the increase, which had been agreed by the cabinet “collectively”.
Meanwhile Sunak said money to support the NHS and social care could not be funded by higher public borrowing. “It’s always easy to duck difficult decisions but I don’t think that’s the right thing to do,” he added.
Senior Conservatives believe Johnson may be plotting a cabinet reshuffle in the coming weeks to address some of the weaknesses in his top team, which may include moving Rees-Mogg.
But the intervention by the leading Conservative Brexiter reflects growing Tory angst at the cost of living crisis.
Although Brexit would allow the government to charge a zero VAT rate on energy bills, Johnson said this week it would be a “blunt instrument” benefiting better-off households as well as poorer ones.
“Would it be possible for this government to believe in Conservative views?” Peter Bone, a pro-Brexit Conservative MP said in the Commons on Thursday, urging ministers to remove VAT on energy.
Sunak is under pressure to ease the cost of living crisis across a range of fronts, with some Conservative MPs calling on him to remove “green levies” from energy bills, claiming that would save the average household £200 a year.
To compound the political risk for Johnson, tax rises and higher energy bills will happen in April, just weeks before a round of local elections on May 5 that will be a crucial test of the prime minister’s popularity.