The government’s bailout of Bulb Energy is set to cost £2.2 billion, this year and next and the risk is ‘potentially unlimited’, according to the Office for Budget Responsibility (OBR).
In its Economic and Fiscal Outlook, published this week, the OBR identified a £1.2 billion cost in 2021/22 and a further £1.0 billion in 2022/23, required to cover the company’s operating losses.
The OBR noted that it had included only costs for the two years because the government intends Bulb to exit the Special Administration Regime (SAR) later this year. It said, “The key fiscal issue is therefore how long Bulb remains under the SAR and loss-making, with those losses borne by the government”.
The Office also highlighted uncertainties over the risk of further costs, given the volatility in global energy markets, saying indemnities extended to administrators following Bulb Energy’s insolvency is one of two “live contingent liabilities” with “potentially ‘unlimited’ exposure” (an indemnity relating to software used by the Department for Education is the other).
More broadly, the OBR said rising energy prices were a significant risk to its forecasts. It says wholesale energy prices have risen faster than is reflected in the 54% rise in the energy price cap in April, and it assumes that an upcoming increase in the energy price cap in October will be over 40%.
The squeeze on energy providers’ cashflows (if they are not hedged) “risks further insolvencies that could require government intervention”. Last week the Select Committee on Business, Energy and Industrial Strategy wrote to the Department to ask why Ministers refused to allow the administrators of Bulb to re-hedge prior to the Russian invasion of Ukraine, saying “This has resulted in a much larger cost exposure to the taxpayer.”
As well as the need to support households the government could also come under pressure to support businesses, the OBR says. Business energy costs are not subject to a price cap and they will not benefit from February’s package of support.