Business secretary Kwasi Kwarteng says energy price cap is ‘here to stay’ – business live

Kwasi Kwarteng insists that the government will not ditch the energy price cap, despite the rising wholesale energy costs.

There are some very good companies out there, and the industry can support itself, he tells the Business, Energy and Industrial Strategy Committee

And he says the structures we have now are ‘robust’.

The business secretary tells MPs that they’ll have seen reports that some industry players think we should remove the price cap:

Kwarteng adds that some companies came into the energy industry knowing there was a price cap, and they’re now complaining about it. It’s a very odd situation to complain about a key feature that was there when you entered the market, he points out.

Business secretary Kwasi Kwarteng says the industry should look to itself for solutions to the crisis in the first instance.

In extreme situations, the government can step in.

But he doesn’t think the government should be rewarding failure.

Supply chain disruption is also causing economic pain in Europe’s largest economy.

Germany’s IFO economic institute has slashed its growth forecast for Germany this morning, warning that bottlenecks caused by the pandemic are hurting growth.

IFO now expects Germany’s GDP will rise by just 2.5% this year, down from a previous forecast of 3.3%. That follows a 4.6% fall in 2020, as pandemic lockdowns hit the economy.

Shortages of “key industrial intermediate products” and raw materials are holding German factories back, it says, and have recently worsened.

That’s hurting output, at a time when new orders have risen “almost continuously” and order books are “fuller than ever before”, warns IFO.

Companies have reported a series of shortages this summer, from semiconductors and plastics to metals, wood and paper.

Ifo chief economist Timo Wollmershauser says the strong recovery from the coronavirus crisis, which had originally been expected this summer, has been postponed again.

Wollmershauser says:

IFO has lifted its GDP forecast for next year, though. It now sees German growth hitting 5.1% in 2022, up from 4.3% forecast before, signaling that the recovery is delayed.

The CEO of energy regulator Ofgem has told MPs that more energy firms are likely to stop trading due to the energy price surge.

Jonathan Brearley told the Business, Energy & Industrial Strategy Committee that Ofgem is planning for any eventuality, and that there is a lot of pressure on the sector right now due to the jump in energy prices.

Q: What gives the prime minister the confidence to say this will be a temporary issue?

Brearley says history shows that price spikes do go away. But that’s not something Ofgem would rely on – it has to plan for a whole range of scenarios.

Q: How significant is the current gas crisis, compared to shocks of recent years?

Brearley says it’s a ‘different kind of change’. The sector has faced shocks before, including the Covid crisis.

But the change in the gas price is something that hasn’t been seen before, at this pace.

Unfortunately, when you see costs change like this, ultimately that will feed through to customers.

And there are many suppliers under huge pressure, due to the dramatic change in their cost base.

Q: So how many suppliers are at risk?

Brearley says that the industry has seen firms exit before. But what’s different this time is the dramatic change in costs.

Five energy suppliers have stopped trading in recent months, others collapsed earlier in the year – and Ofgem expects that more won’t be able to face the circumstances we’re in, Brearley says.

But he won’t predict how it will play out.

Q: How many more, and how many customers?

Brearley says Ofgem is planning for a range of scenarios:

Q: So millions of customers could be affected?

Certainly a large number of customers, Brearley repeats- but he won’t pre-empt any processes taking place.

Q: Will it just be small suppliers, or could large ones be hit too?

Brearley refuses to make predictions – pointing out that the industry has seen a six-fold change in the gas price.

As a prudent regulator, we’re planning for all scenarios, he adds.

Our Politics Live blog is covering all the action:

Environment secretary George Eustice also warned that the cost of carbon dioxide is going up sharply… which will have a knock-on impact on food producers.

Explaining the government’s deal with CF Industries to restart production at its fertiliser plants, Eustice told Sky News that the CO2 price is going to rise sharply, from around GBP200 per tonne to eventually “closer to GBP1,000 a tonne”.

That would hit a range of industries, including food and drink producers.

Stuart Joyner, Specialist Sales for Energy, Redburn, has warned that the deal with CF Industries won’t fix the underlying problems: