Britain Broken By Fuel Costs

Britain is in the middle of a crisis driven by an inflation surge, and especially by the monstrous rise in the cost of fuel.

The Ofgem Price Cap

Now although they are the bill issuers, most UK energy suppliers are middlemen, meaning that they buy the energy they control in the international wholesale market, and then sell it on to you.

The UK Ofgem price cap, allows these middlemen to make a profit of just under 2p for every £1 on the bills sent to consumers .... normally not a problem. The chart above shows that the main difference in the costs is that of the rapid rise of the wholesale costs. The wholesale cost of energy is driven by the price of gas, and as that’s rising so much, its pushing the UK price cap higher every few months.

So when energy bills rise, the middlemen's profits will rise too (the purple at the bottom of the bars), but this is nothing like as quickly as the profits of the energy companies they’re buying the energy from. British Gas for instance, made nearly £100m in profits supplying energy in the first half of this year. However their parent company, which also makes money from oil and gas drilling, saw profits rise more than 10 times that £100m.

The VAT the government takes, also rises with overall prices, but cancelling it and the green levies, wouldn’t bring bills back to the level they are today. Energy analysts Cornwall Insight have revised their forecast for January 2023's energy price cap to £5,386 a year, and these Cornwall Insight predictions have placed that number closer to £550 per month by April, which is nearer to the average cost of a mortgage, as once again market prices have recently surged yet higher.

To put this in perspective, these predictions if correct, mean that the average UK households will be paying more for energy next year, than for their whole income tax bill, or put another way, it is the equivalent of facing a basic rate of tax above 40% rather than 20% for everyone. This can't be sustained by a public facing raging inflation on multiple fronts .... and this situation is exacerbated in the UK by a rudderless government, paralysed by an inordinately long prime ministerial contest (that should have ended a week after just two candidates emerged several weeks ago).

Once again, the Conservative party have shot themselves in the foot:

• Firstly, they probably shouldn't have ousted Boris Johnson as Prime Minister, in a self indulgent coup - He's a vote winner, and the two muppets fighting over the crown are not. Apparently many in the party believe that to be true and are trying to retain him.
  
• Secondly, whomever of the Tory Grandees, who thought that an extended leadership contest in the middle of a European War, Inflation Crisis and a failing National Health Service, was a good idea, needs removing. It has left us leaderless for weeks at a critical time.
  

Gas And Electricity Prices Europe

In the meantime, the UK is now facing amongst the highest energy costs in Europe .... UK natural gas prices have shot up by nearly 96 percent in the year to July, pushing up electricity prices 54 percent in turn, according to the Office for National Statistics (ONS).

This is allegedly a result of Gas being the single largest source of electricity production in the UK. It supports over 40 percent of the total production alone, compared to less than one fifth for the European bloc as a whole. So although most of the UK’s natural gas comes from the North Sea and Norway, our critical dependence on gas, means both gas and electricity costs have soared, driven by the gas price rise, and pushing our total price rise higher than most of Europe. We are paying the cost of not keeping nuclear electricity generation as a major percentage of our power supply production.

Where Our Supplies Come From

I always though that our own gas from the North Sea was supposed to mean that we would be immune from this .... but apparently not .... the producers have simply upped the cost in line with world price rises. So we are facing a crisis that could lead to civil unrest and an economic crisis of the type not seen since the late 1970's. Investment bank Citi has warned that UK inflation could hit 18.6 per cent, the highest level since 1976, if energy prices are not reigned-in.

Its hard to see this ending well .....