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Shielding Britain’s households from energy crisis ‘will cost more than £100bn’

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The energy industry’s favoured plan to shield Britain’s households from the soaring cost of energy will cost more than £100bn over two years, according to the boss of one of the UK’s largest power operators.

Keith Anderson is the chief executive of ScottishPower, one of the big six energy suppliers, which alongside the rival firm E.ON came up with the deficit tariff scheme that was last week backed by the trade body for the sector, Energy UK.

On Friday, the energy regulator for Great Britain, Ofgem, publishes its latest update to the price cap from October, which is forecast to soar from its current annual level of £1,971 to £3,582, while it could go even higher in April to as much as £4,400.

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Under the ScottishPower proposals, household bills would be protected from rocketing bills by having the cap frozen around the current level, with suppliers covering the difference between that and the wholesale price of gas and electricity by borrowing from a bailout fund arranged by the government through the banks.

The cost would gradually be paid off by consumers over a period of 10 to 20 years, either through government borrowing or spread across higher energy bills, or through both of these means.

However, both candidates to be the next prime minister have ruled out a freeze on energy prices, claiming it would be an expensive, short-term fix that would fail to solve the underlying problem with soaring energy costs.

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Rishi Sunak, the underdog in the race to become the next Conservative party leader, said he was “nervous and sceptical” about Anderson’s plans.

Asked why he did not support the deficit tariff scheme, he told BBC Radio 4’s Today programme: “We need to make sure that what we’re doing in response is not only affordable but also isn’t going to make inflation worse … embarking on policies and programmes that add not just billions but tens and tens and tens and tens of billions of pounds on a permanent basis to our borrowing are risky.”

Government sources also played down the likelihood of the frontrunner in the leadership race, Liz Truss, backing the scheme. “It’s for the next prime minister to decide how best to support people this winter,” one said. “Both candidates have ruled out a freeze so [the scheme] is irrelevant.”

Anderson first outlined the deficit tariff plan in the spring to the business secretary, Kwasi Kwarteng, who is tipped to become the next chancellor if Truss becomes the prime minister, according to the Financial Times.

It was raised again with Kwarteng and Boris Johnson at their meeting with energy bosses earlier in August, where the boss of Centrica is understood to have voiced support.

Anderson said the cost of living crisis caused by soaring energy bills was “bigger than the Covid pandemic”, telling STV News the cost of energy must be frozen.

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Wholesale gas and electricity prices were already on the rise as the world economy recovered from the coronavirus pandemic, before Russia invaded Ukraine, which sent them soaring. Moscow has been using its control over European gas supplies in an attempt to gain political leverage.

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Warnings of what will happen to Britain’s consumers without further government support continue to pour in from the energy industry.

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The country is “facing a national crisis, both societally and for the economy because of this energy situation”, said Iain Conn, the former chief executive of Centrica. “Something has to be done and done quickly.”

The government has to intervene to “dramatically reduce bills this winter”, while also working internationally to bring down wholesale energy prices, Conn told BBC Radio 4’s Today programme.

“The magnitude and pace of price rises are simply impossible for customers, whether they are individuals or businesses, to plan for, manage and afford,” Conn said. He added that he was supporting Anderson’s deficit tariff plan.

On Tuesday, the head of EDF Energy’s retail business, Philippe Commaret, said households were facing a “dramatic and catastrophic winter”, adding: “In January, half of the UK households might be in fuel poverty.”

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