Gas firms may face windfall tax as energy crisis hits households

Another 800,000 households fell victim to the energy crisis on Wednesday with the collapse of two more suppliers, as ministers admitted they were considering a windfall tax on companies profiting from record gas prices.

The failure of Avro Energy and Green means that seven energy companies have gone bust in a little over six weeks, with a total or more than 1.5m households now being shunted on to a new supplier and forced to pay hundreds of pounds more for their gas and electricity per year.

The failure of Avro Energy and Green means that seven energy companies have gone bust in a little over six weeks, with a total or more than 1.5m households now being forced to find on to a new supplier and forced to pay hundreds of pounds more for their gas and electricity per year.

With soaring gas prices threatening the viability of all but the biggest firms, the business secretary, Kwasi Kwarteng, warned the government had to prepare for “long-term high prices”, and would consider “all options” to tackle the crisis.

Boris Johnson, speaking ahead of his speech to the UN general assembly in New York, said the crisis was the “growing pains of the global economy coming back to life”.

Pressure is mounting on ministers to find ways of providing some financial support for households, which are due to be hit with a £139 increase in bills next month – some of the most expensive energy bills on record.

Combined with the £20 universal credit cut and rising inflation, Labour and some Tory MPs have warned of a potentially catastrophic cost of living crisis.

On Wednesday, the Joseph Rowntree Foundation estimated a typical low income family would be £1,750 worse off by next April.

The energy market shock has also raised concerns for the UK’s struggling consumer supply chains and heavy industries such as steel, reigniting fears of empty supermarket shelves ahead of Christmas and a return to a three-day week for factories.

The government’s options include a cash grab from gas companies, big power generators and traders to help protect the millions of households whose energy supplier is likely to fail this winter.

Gillian Cooper, the head of energy at Citizens Advice, said the latest failures would “add to people’s worries at what’s already an extremely unsettling time”.

“Supplier collapses and rocketing energy prices, combined with the looming cut to universal credit, are creating huge amounts of uncertainty for millions of people,” she said.

Jonathan Brearley, the chief executive of Ofgem, added that the recent gas market price rises were “something we don’t think we’ve seen before, at this pace”.

“We do expect a large number of customers to be affected. We’ve already seen hundreds of thousands of customers affected. It may go well above that,” he said.

Emma Pinchbeck, the chief executive of Energy UK, added that the crisis had exposed the vulnerability of the country’s retail energy sector, meaning even “good, well-run companies will fail”.

Kwarteng told MPs on Wednesday that the government was considering the Spanish government’s plan for a €3bn (£2.58bn) windfall tax on generators and energy traders that stand to gain from the energy crisis while homes and energy suppliers struggle.

“We’re looking at all options. I think what they’re doing in Spain is recognising that it’s an entire system. We’re in discussion with [energy regulator] Ofgem officials, looking at all options,” Kwarteng told the business select committee.

Avro Energy, based in Hinckley in Leicestershire, became the largest supplier to go bust after leaving 580,000 households stranded, while Newcastle-based Green left behind more than 250,000 customers.

Green collapsed just days after admitting it would struggle to survive the winter if the government refused to provide any support to smaller energy suppliers.

Green’s chief executive, Peter McGirr, told the Guardian there would be a “tsunami of more [collapses] to come” because small suppliers do not have deep enough pockets to weather the surge in costs without passing them on to their customers.

The government is considering paying larger energy suppliers to shoulder the cost of picking up stranded customers, but has said it is unwilling to pay to prop up failing energy companies.

“What I don’t want to do is to give taxpayer money to companies which have come into the market only to exit the market after a year. I don’t think that’s responsible,” Kwarteng said.

In total almost 2m households have lost their supplier this year, and this number is expected to spiral in the months ahead. The number of suppliers in the market is predicted by industry insiders to shrink from 70 at the beginning of the year to about 10 by the end of winter.

Surging energy market prices have already brought steelworks and fertiliser companies to a standstill, and threatened to derail the supply chain for carbon dioxide which is critical to the UK’s food, drink and meat industries.

After days of increasingly desperate warnings from retailers, abattoir owners, beer and fizzy drink makers, ministers were forced to subsidise a US chemicals giant to restart its fertiliser factory on Teesside – to ensure vital supplies of carbon dioxide begin flowing again.

That rescue deal will cost taxpayers millions of pounds, environment secretary George Eustice admitted, and is likely to force up prices for shoppers. However, that deal only lasts for three weeks, and ministers have been unable to put a total price on the cost of propping up the factory.

Regarding the deal, Johnson, who refused to say if government support could continue after the three-week period, said: “It’s a once in a century pandemic and we’ve had to cope with it in all sorts of extraordinary ways. This is just another part of it.

CF Fertilisers supplies food-grade CO₂ as a byproduct of fertiliser manufacturing, with the gas vital for food and packaging firms. Eustice said: “The reason why it is justified for the government is … if we didn’t, there would be a risk to the food supply chain. It’s not a risk the government is willing to take.”

Richard Griffiths, the chief executive of the British Poultry Council, said the deal was a “great relief” for the industry as it was only days away from running out of CCO₂, which is used in the slaughter of birds, but added the higher cost of the making the gas will “ultimately feed through to food prices”.

Kwarteng said: “I’m confident that we can get other sources of CO₂ in that period, there was an immediate crisis and the deal that we reached solved the immediate problem.”

Surging power prices and CO₂ shortages have heaped pressure on supply chains already creaking under staffing shortages, leaving retailers demanding urgent action from ministers to help them plug gaps in their workforces.

The shortage of HGV drivers, which is estimated to total about 100,000, has left gaps on shelves and forced grocers to offer generous pay deals to attract hauliers.

However, pleas from the food and drink industry for a short-term visa scheme to recruit overseas workers, including HGV drivers, to ease disruption in the food supply chain, has been rebuffed by Kwarteng, who told them to hire and retrain British workers instead.

Britain’s biggest supermarket warned the sector could be hit by panic buying in the run up to Christmas unless urgent action is taken to fix the shortage of HGV drivers.

Tesco’s distribution director Andrew Woolfenden told ITV: “Our concern is that the pictures of empty shelves will get ten times worse by Christmas and then we’ll get panic-buying.”