Mail’s Fake Bailout Claims Debunked


By Paul Homewood

This really is a grossly dishonest, scurrillous and factually inaccurate piece:


Households across Britain are being punished with a ‘stealth tax’ on their energy bills amounting to billions of pounds to pay for the bailout of dozens of electricity and gas supply companies.

Campaigners have condemned the increases to the levy, which has soared over the past 12 months – and now costs bill-payers around £273 each.

The inflation-busting figure does not include the £6.5 billion cost to the taxpayer of bailing out controversial start-up company Bulb, which had 1.7 million customers when it suddenly collapsed.

The money is not being spent “to bail out energy firms”; this would mean that the money has gone to those failed companies in order to keep them going.

The system of Supplier of Last Resort has been operating since 2008. It was set up to protect energy customers in the event of their supplier going bust, where there would have been a danger of being left without electricity and gas, losing credit balances on their accounts etc. Under the mechanism, OFGEM appoint a new supplier to take over.

The new supplier is quite rightly allowed to claim back any additional costs from a fund  paid for by an industry levy on Distribution Use of System Charges. All energy suppliers pay this levy, and currently the charge is built into the Energy Price Cap.

Originally the claims on the levy were tiny, but in the last year or two have rocketed. Energy suppliers have often lost money recently as energy market prices have outstripped the Energy Price Cap. Furthermore, whereas suppliers may have fixed the prices they pay in advance for their existing customer base, they would need to pay current prices for any new dollop of customers handed over by OFGEM.

In short, the money, even the Bulb “bailout” has gone to protect customers of these failed companies.

The Mail ignores the two underlying policy errors made, which have largely contributed to this crisis:

1) The Energy Price Cap –  many smaller companies have gone under in the last two years because the Cap was set far too low. Or, more to the point, the Cap was fixed for six month periods during which market prices rose rapidly.

It has been the media above all who pushed for the Cap in the first place.

2) Smaller energy companies were not only allowed to proliferate without any real checks on their financial stability, they were actually encouraged to. Politicians and media have regularly attacked the big energy companies for ripping customers off (partly to divert attention away from the green subsidies which have forced up electricity prices). They have encouraged customers instead to move to smaller companies, more often than not boasting fake green credentials.

There is an issue of how these costs are passed on to customers. Currently it is done through Standing Charges, so each customer pays the same; this obviously can be regressive. However, OFGEM took a hard look at this a few months ago. They argued that to add the cost on to the price of energy would penalise those vulnerable people who use more energy:

Following a review of one part of electricity standing charges covering the cost of supplier failures, we looked long and hard at whether moving the costs from standing charges to usage was the right thing to do, but the numbers just didn’t stack up.

“Our analysis shows it would disproportionately negatively affect some of the most vulnerable consumers who use high amounts of energy and are least able to reduce their use, such as those with disabilities and the elderly, while resulting in minimal savings for those it would benefit – around just £1 a month.”

Whichever way is chosen, customers still end up paying. But for the Mail to claim that “pensioners pay the most” is an outright lie.

Meanwhile, if they want to report on real bailouts, maybe the Mail should mention the German government, which has already injected billions into Uniper, to stop them going broke. And many more bailouts will follow.