Britain needs to move on to ‘war footing’ over energy costs, adviser warns

The British government should move on to a “war footing” to tackle the energy crisis as the regulator Ofgem prepares to announce a sharp jump in energy bills from October, according to a former senior adviser.

The cap on typical household energy bills is expected to roughly triple from levels a year ago to £3,600, according to industry and government estimates — with further rises potentially above £5,000 looming early next year.

Adam Bell, the former head of energy strategy at the business department, said the new prime minister, who is due to take over on September 5, must act quickly to replace gas in the energy mix of the UK economy as concern grows about the impact of rising prices on households and business this winter.

“War footing is very much the necessary response to this situation — this is like the oil crises of the 1970s but the difference is we know how to get out of this now,” Bell said. “The question is whether the government is willing to drive forward with the rapid degasification of the economy that is clearly required.”

Bell’s comments were echoed by Lord David Howell, energy secretary under Margaret Thatcher in the 1980s, who told the BBC that the government needed to “worry a lot” and move on to something “similar to a war footing” through the winter.

The government is examining a possible bailout plan for households, proposed by Scottish Power, that would cap bills around the current level of £2,000. That level of intervention would cost about £100bn over the next two years, which would exceed the scale of the coronavirus furlough scheme that protected millions of jobs during the pandemic.

James Cooper at consultants Baringa warned that without government help, the soaring energy costs would have a bigger effect on the average family than the 2008 financial crisis. “We’re now moving into territory where a majority of households are placed into debt or a very fragile financial position,” he said.

The sharp jump in energy bills is driven by the spiralling international price of wholesale gas, largely because of Russia’s decision to cut supplies to western Europe in response to sanctions imposed after the invasion of Ukraine.

UK gas prices have almost quadrupled since the middle of June and now trade at roughly ten times the average level of the last decade.

Dale Vince at Ecotricity, a renewables generator and energy retailer, said that the government needed to intervene to protect the public as well as small business, which are not covered by the price cap. Many companies face at least a fourfold rise in energy bills from October.

He called on ministers to consider a proposal to put a price cap on gas producers in the UK portion of the North Sea, similar to restrictions on energy retailers that limit their profit margins around 2 per cent.

“This is as exceptional as the pandemic and needs a similar response,” Vince said. “Almost 50 per cent of the UK’s gas comes from the North Sea so we could solve half of the crisis at a stroke.”

The UK oil and gas industry has pushed back hard against windfall taxes and in May won large carve outs for investments when then chancellor Rishi Sunak raised taxes on the industry.

Harbour Energy, the largest oil and gas producer in the UK North Sea, on Thursday reported a ten-fold increase in pre-tax profits to $1.5bn in the first half of the year.

Sunak announced a package of measures earlier this year involving £400 payments to every household in Britain and more generous help of up to £1,200 for more vulnerable families.

Yet the new prime minister — either Sunak or foreign secretary Liz Truss — will come under immediate pressure to extend that relief.

Sir Keir Starmer, leader of the opposition Labour party, said ahead of the Ofgem announcement that the government was “absent at this time of national crisis”.