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Britain’s energy price crunch is turning into a full-blown crisis, as the government holds emergency talks amid fears more small suppliers could soon collapse.
Kwasi Kwarteng, the business secretary, will conduct a summit with gas industry chiefs today, as soaring market prices threaten consumers, business, and suppliers.
As we write this morning:
Mid-level suppliers will be placed into administration if they fall into trouble this winter in an attempt to protect consumers from costlier bills, he revealed on Sunday, after spending a frantic weekend thrashing out contingencies for Britain’s looming gas crisis.
Kwarteng said small firms would be allowed to go bankrupt, with their customers auctioned off to the company prepared to offer them the cheapest rate.
It is hoped the meeting will contain the fallout caused by the rise in market prices, which led to a frantic weekend of meetings and phone calls, culminating in the government drawing up plans to deal with future insolvencies among the 60-plus gas suppliers.
But the big suppliers are reportedly pushing for a major Government support package to help them through the crisis,
The Financial Times reports today the industry wants the creation of a so-called “bad bank” to absorb unprofitable customers from firms that fail — a model used in the financial crisis over a decade ago.
Talks with the government had focused on three different approaches, four people familiar with the situation confirmed, while stressing that ministers were “keen not to reward failure”.
One suggestion is for the formation of a “bad bank” which would take on unprofitable customers from failed suppliers — a move reminiscent of measures taken at the peak of the financial crisis in 2008 and one designed to avoid weakening otherwise strong companies.
“This could get the industry through the current period of crisis,” one person familiar with the talks said.
“By parking the problem in a bad bank, it would make it easier to sort out the immediate crisis and then take stock longer term. It would allow the government to handle several suppliers going bust at the same time.”
Other options could include the government underwriting debt for the larger suppliers, or for regulator Ofgem to step in and run failed companies, effectively putting them into nationalisation.
Several small suppliers have already collapsed in recent weeks as wholesale price soar, and concern is growing that more could soon go out of business.
As my colleague Jillian Ambrose writes, the majority of the UK’s small energy suppliers could be left to collapse this winter….
The Guardian understands the government would rather put in place arrangements to protect the millions of homes that may be left without a supplier this winter than prop up poorly financed companies that are likely to fail.
One senior industry source said the government was “not interested in bailing out badly run companies” and may leave the sector to experience a “natural response” to the unfolding crisis.
Those firms’ customers would be transferred to another supplier. But they aren’t keen to pick up these customers, as they may be on unprofitable contracts given the current jump in wholesale costs.
The energy crisis forced several UK fertiliser companies to suspend work last week. That has disrupted carbon dioxide supplies (CO2 being a byproduct of the fertiliser process), which is now threatening the UK food supply chain, as CO2 is used to stun animals at abattoirs, and also in packaged food, fizzy drinks and ready meals.
If the crisis deepens, UK farmers could be forced to cull pigs:
The surge of energy prices is also one factor weighing on global markets, where share prices have fallen back in recent weeks.
Higher energy costs will drive up costs, eat into profitability, knock growth and fuel inflation. An unattractive combination. Shares have dropped in Asia-Pacific markets, and we’re looking at losses in Europe and Wall Street.
We’ll be tracking all the action through the day….
- 7am BST: German producer prices for August
- 3pm BST: NAHB Housing Market Index of US housebuilders
- 3.15pm BST: Treasury Committee hearing on jobs, growth, and productivity