Why the energy price cap has come down for April – to what could be a new normal after Russia’s Ukraine invasion

Published

3 months ago

February 23, 2024

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The reduction in the Ofgem price cap that will apply from April may be the final step on the long, ruinously expensive road to a new normal for consumer energy prices.

The guide price for typical annual dual-tariff use of £1,690 – a fall of 12.3% from the previous cap – is a dramatic reduction from the peak of more than £4,000 that applied just a year ago and prompted multi-billion pound state support for every household in the country.

After bouncing between £1,800 and just shy of £2,000 in the three quarters since last June, this reduction, taken with projections of a further drop to around £1,500 in three months, could represent the floor for post-Ukraine invasion prices.

To be clear, a price that’s still considerably higher than the £993 we expected to pay in the winter of 2020-21 represents a dramatic, material and permanent increase in the cost of living, and a return to that level is unlikely as long as Russia is a global pariah at war.

Energy markets may look becalmed but volatility is in their nature.

Energy price volatility temporarily subsides

A warm, wet winter helped UK domestic gas demand fall 16% in 2023 compared to the pre-war average, but the weather has flattered UK energy security.

Much of the flow of gas from Russia has been replaced by liquid natural gas from Australia, the US and Qatar, and pipelines from Norway, all ostensibly friendlier nations, but the UK remains exposed to the kindness of strangers to heat homes and fire power stations.

The long-term answer is low-carbon and renewable energy sources, but while Vladimir Putin has provided the clearest motivation yet to accelerate, the transition has become significantly more expensive than anticipated.

The offshore wind industry in particular has had a brutal year with supply chain resources finite and finance, like power, no longer cheap.

For consumers, however, this lull may signal the return of a functioning competitive market among suppliers.

Since Russian tanks rolled into Ukraine the Ofgem figure has been a cap in name only.

In practice, it’s been a universally applied maximum charge, with the taxpayer picking up the balance of every pound over £2,500.

Lower wholesale prices, helped by the caprice of a mild winter, mean suppliers may have to work a little harder for your custom.

British Gas is already offering a fixed price guaranteed at £1 below the April price cap, while E.On is offering a 3% discount on the cap for a year.

Not much compared to the wild (and entirely unsustainable market) that existed before the war, but it is a start.

More than billpayers welcoming the fall

The reduction will be welcome at the Treasury too. Having set the precedent of paying our energy bills and allowing the national debt to balloon close to 100% of GDP in the process, there is no appetite to return to feeding the national meter.

With the cap now around half the more than £3,100 that applied in April last year there will be downward pressure on inflation too, though don’t expect the Bank of England to rush to cut rates as a consequence.

The biggest annual reduction in bills was factored into the figures for last October, helping drag CPI down from its 11% peak, and the Bank of England is already looking ahead to when the gravitational pull of energy prices falls out of the figures and secondary factors start to drive the headline rate.

There may also now be space for Ofgem and ministers, election permitting, to examine some of the remaining obvious flaws in the domestic market.

Electricity remains almost four times more expensive per unit than gas thanks to green taxes, despite gas being the fuel we need to remove from the network if net zero and energy security are genuine goals.

If the government is serious about incentivising the decarbonisation of home heating with heat pumps – an open question – these running costs will have to be addressed alongside installation grants.

And standing charges remain a regressive charge for billpayers, with electricity costing more than £3.50 a week before you have turned a light on, though the new cap makes that a slightly less terrifying prospect than a year ago.

Business

Marks & Spencer’s website and app go down

Published

14 hours ago

May 18, 2024

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Marks & Spencer's website and app go down

Marks & Spencer’s website and app has not been working for several hours, with a message telling shoppers “you can’t shop with us right now”.

“We’re working hard to be back online as soon as possible,” it adds.

All the menus and images have disappeared apart from one showing a model in a green jacket.

Customers trying to use the app got the message: “Sorry you can’t shop through the app right now. We’re busy making some planned changes, but will be back soon.”

The site is understood to have been down for several hours.

Replying to one customer on X, the retailer said: “We’re experiencing some technical issues but we are working on it.”

M&S is the latest high street name to have technical issues – last month some Sainsbury’s shoppers had problems with their online orders.

The outage comes a few days before M&S is expected to reveal a big jump in annual profits.

It’s been a successful year for the brand, with strong sales across the business following a turnaround plan that has included store closures and cost cutting.

Business

Employees at fintech giant Revolut to cash in with $500m share sale

Published

18 hours ago

May 18, 2024

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Employees at fintech giant Revolut to cash in with 0m share sale

Bosses at Revolut, Britain’s biggest fintech, are drawing up plans to allow employees to cash in with a sale of stock valued at hundreds of millions of pounds.

Sky News has learnt that the banking and payments services provider is lining up investment bankers to coordinate a secondary share sale worth in the region of $500m (£394m).

Morgan Stanley, the Wall Street bank, is expected to be engaged to work on the proposed stock offering, which will take place later this year.

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City sources said this weekend that Nik Storonsky, Revolut’s co-founder and chief executive, was determined to seek a valuation of at least the $33bn (£26bn) it secured in a primary funding round in 2021.

“This will not be a down-round,” said one person familiar with Revolut’s thinking.

Although the fintech, which has more than 40 million customers, is not planning to raise new capital as part of the transaction, any sizeable share sale will still be closely watched across the global fintech sector.

It is expected to be restricted to company employees.

Revolut ranks among the world’s largest financial technology businesses, with revenue virtually doubling last year to around £1.7bn, according to figures expected to be published in the coming months.

Founded in 2015, it has experienced a string of regulatory and compliance challenges, with reports last year highlighting its release of funds from accounts flagged by the National Crime Agency as suspicious.

The company’s growth has taken place at breakneck speed, with customer numbers soaring from 16.4m at the point of the Series E fundraising nearly three years ago.

Insiders argued that despite the protracted downturn in tech valuations over the last two years, Revolut’s relentless expansion would easily justify it maintaining its status as Britain’s most valuable fintech.

Monzo, the UK-based digital bank, recently confirmed a Sky News story that it had closed a funding round worth nearly £500m, including backing from an arm of Google’s owner, Alphabet, and a Singaporean sovereign wealth fund.

Elsewhere, however, the funding landscape has been bleaker, with a growing number of tech companies which had attracted unicorn valuations of more than $1bn now struggling to stay afloat.

Revolut has allotted stock options to many of its 10,000 employees as part of their compensation packages, although it was unclear how many would be eligible to dispose of equity in the transaction later this year.

A source close to the company said it had had numerous expressions of interest from prospective investors.

Revolut’s current shareholders include SoftBank’s Vision Fund and Tiger Global.

News of the proposed share sale comes as Revolut’s investors continue to await positive news about its application for a UK banking licence.

The company applied to regulators to become a bank in Britain more than three years ago, but has so far failed to secure approval.

Mr Storonsky has been publicly critical of the delay, and last year questioned the approach of British regulators and politicians, as he suggested that he would not contemplate a listing on the London Stock Exchange.

An initial public offering of Revolut appears to still be some way off, although it would not surprise investors or industry peers if it initiated a listing process in the next couple of years.

One person close to Revolut said board members were among those expected to participate in the secondary share sale, although further details were unclear this weekend.

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The company is chaired by Martin Gilbert, the City veteran who has faced governance and performance challenges at Assetco, the London-listed asset manager he runs.

Its other directors include Michael Sherwood, the former Goldman Sachs executive who was jointly responsible for its operations outside the US and who was regarded as one of the most skilled traders of his generation.

An external shareholder in the company said the exclusion of non-employees from the deal could draw criticism from some investors.

Revolut has conducted secondary share sales of this kind in the past, including after its 2021 Series E round.

This weekend, Revolut declined to comment.

Business

Ex-Post Office head of IT says Paula Vennells ‘hoped to avoid’ inquiry – and reveals she blocked her number

Published

3 days ago

May 16, 2024

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Ex-Post Office head of IT says Paula Vennells 'hoped to avoid' inquiry - and reveals she blocked her number

A former Post Office executive has said she was forced to block ex-boss Paula Vennells’ phone number after the ex-CEO called multiple times asking for help to avoid an independent inquiry into the Horizon IT scandal.

Lesley Sewell, previously the company’s head of IT, told the Post Office inquiry on Thursday that former CEO Ms Vennells had reached out to her four times between 2020 and 2021.

Ms Sewell said that she blocked Ms Vennells’ number due to discomfort with the contact.

In her witness statement to the probe, Ms Sewell said that one of Ms Vennells’ emails referenced the need to fill in memory gaps regarding Horizon and “Project Sparrow”, a committee addressing issues with forensic accountants who identified flaws in the accounting system.

“Paula contacted me on four occasions in total. I recall blocking her number after the last call as I did not feel comfortable with her contacting me,” Ms Sewell said.

“I had not spoken to Paula since I had left POL [Post Office Limited] in 2015.”

According to Ms Sewell’s testimony, former chief executive Ms Vennells said that she had “been asked at short notice” to appear before a parliamentary select committee on “all things Horizon/Sparrow and need to plug some memory gaps”.

Ms Sewell says Ms Vennells added: “My hope is this might help avoid an independent inquiry but to do so, I need to be well prepared.”

Ms Sewell, who struggled to contain her emotions and broke down in tears while giving her oath at the start of her inquiry evidence, was offered support and breaks as needed by chairman Sir Wyn Williams.

Sir Wyn told the former executive: “Ms Sewell, I appreciate this may be upsetting for you, Ms Price will ask you a number of questions in a proper and sensible manner, but if at any time you feel you need a break, just let me know, all right?”

The Post Office has faced significant scrutiny following the ITV drama Mr Bates Vs The Post Office which highlighted the Horizon IT scandal.

The faulty system led to the prosecution of more than 700 sub-postmasters between 1999 and 2015, with many still awaiting full compensation despite government announcements regarding payouts for those with quashed convictions.