Taxpayers face additional £500mn bill for Bulb Energy bailout

The government bailout of failed British energy supplier Bulb will cost taxpayers an additional £500mn over two years, taking the total support required to £2.2bn, according to the independent fiscal watchdog.

The Office for Budget Responsibility said in documents published alongside the Spring Statement on Wednesday that the bailout would cost £1.2bn in 2021-22 and a further £1bn in 2022-23 to “cover the company’s operating losses”.

Bulb, Britain’s seventh biggest energy supplier with some 1.6mn customers, was rescued under a process known as “special administration” in November after it admitted it could no longer withstand sharp swings in wholesale energy prices.

At the time of the rescue, the government said it would put up £1.7bn in taxpayer money to support the failed group until it could be sold. People with knowledge of the situation said administrators had used £800mn to keep the company afloat, a £200mn increase on their last estimate a week ago.

The price of supporting Bulb is in addition to an estimated £2.4bn cost to consumers of rescuing customers of the roughly 30 other collapsed energy suppliers.

These companies were dealt with via a “supplier of last resort” process, which transfers their customers to an alternative company, allowing it to recoup its costs in the process. Those costs are eventually repaid by consumers via their energy bills.

Energy regulator Ofgem estimated in evidence published by the House of Commons business, energy and industrial strategy select committee on Wednesday that it expects companies that rescued orphaned customers to reclaim “approximately £2.2bn to £2.4bn”.

Meanwhile, energy companies and fuel poverty campaigners attacked Rishi Sunak, chancellor, for failing to introduce further measures in his Spring Statement to help the majority of households with crippling increases in energy bills this year.

The chancellor said he wanted to help households reduce their energy usage and shrink emissions from their properties by cutting value added tax on products such as insulation, solar panels and heat pumps to zero from April — a policy he said was only made possible by “Brexit freedoms”.

Previously VAT rates on such energy saving materials were governed by a complex system which meant some installations benefited from a 5 per cent VAT rate but the tax was levied at 20 per cent on others. The system was restricted by a ruling from the European Court of Justice until the UK left the EU.

Nesta, the UK innovation foundation, said the new zero VAT rate would knock up to £2,000 off the typical cost of installing a heat pump.

But some energy experts warned the move would only benefit affluent households that could afford property upgrades at a time when domestic energy bills are set to rise to record levels.

Justina Miltienyte, energy policy expert at price comparison company Uswitch, said it risked further widening “the gap between those that have and those that have not”.