Banks and energy companies should share burden of record energy bills
Banks and energy companies should help finance a sustained freeze on record household energy bills to reduce the burden on taxpayers, according to proposals published by the Social Market Foundation.
The analysis, written by former investment banker and economic policy advisor Michael Johnson, rules against industry calls for a price cap freeze without the purchase of collateral assets.
Johnson believes both energy providers and the government should purchase collateral assets. which would fund support for providers that run into financial trouble.
He argued this would encourage banks to make long-term loans to help energy companies survive.
With the energy price cap increasing to £3,549 from October, Johnson argued that calls only to freeze consumer prices, while energy providers face high prices on the open market, risk pushing those companies into bankruptcy.
Instead, he proposes that loans funded from the collateral assets should be in place for up to 30 years.
This would give energy providers decades to recoup their losses through slightly higher household bills – and as such, spreading the cost of the crisis over the long term.
Energy providers have asked for the government to provide a multi-billion pound emergency fund to keep them afloat, yet Johnson argues that such a scheme requires taxpayers to take on too much of the risk and asks too little of energy company shareholders.
Johnson, said: “These proposals build upon the energy providers’ sensible suggestion to freeze the energy price cap and the establishment of a funding facility. Inspiration is drawn from a significant precedent, the highly successful Brady Plan, executed in the 1980s to help resolve a sovereign debt crisis. Today’s energy cost challenge Is commensurate in scale and required timeframe for resolution.”