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Boris Johnson’s plan to bail out energy companies risks fresh banking crisis

London, 17 January — Ministers have been warned that Boris Johnson’s plan to underwrite bank loans amounting to £20 billion to energy suppliers poses a serious risk of a fresh banking crisis.

In recent days, news media have reported that Downing Street is developing an emergency loan scheme for energy firms to stave off a dramatic increase in bills.

According to the BBC the government is developing a £15bn plus “Cost Deferral Mechanism” to smooth the expected rise of energy bills over a period of years, with “some supporters of the PM arguing he will use this Cost Deferral Scheme, to relaunch his premiership.”

Mr Johnson’s political gamble is bad news for everyone. Rather than address the fundamental problem with UK energy supply, which has been distorted and damaged by vast subsidies to intermittent green generators (£10 billion a year at present), the government seems prepared to bail out energy companies and force banks to lend them billions.

Confronted with a gaping wound Mr Johnson has turned up with a sticking plaster.

The plan would set a dangerous precedent for future years. The £20 billion under discussion is, after all, to cover only the cost problems arising over the last 12 months. If energy prices stay high, the government will have to provide another bailout next year, further weakening both the energy suppliers and the banks.

This raises the spectre of a fresh banking crisis, with government having to save its forced lenders from the consequences of the high risks into which Mr Johnson’s desperation has drawn them.

It would also be extremely difficult to ensure that these forced loans can be recovered. They would be, in effect, handouts and would set a shackling precedent for endless bailouts to the energy sector. They would be rightly perceived by the public as gifts to energy company fat-cats and would be extremely unpopular.

Dr Benny Peiser, Net Zero Watch director, said:

The only winners of Boris Johnson’s precarious gamble are the energy suppliers and their shareholders, who are protected from bankruptcy, and Mr Johnson himself who hopes to save his premiership by pushing the energy crisis onto the banking sector.”

Dr John Constable, Net Zero Watch’s Director of Energy, said:

It is very difficult to believe that the Chancellor and the Treasury is in favour of this dangerous and lazy policy.”

Note for bloggers and journalists

Net Zero Watch has published a guide on the options available to the government to effectively solve the energy bills crisis in the short and medium term.

The Net Zero Watch Guide to the Energy Bills Crisis (pdf)