Bank of England to lend UK energy companies as much as £40bn

Bailout fund provided amid soaring market prices and fears of another wave of collapses



The Bank of England will lend UK energy companies as much as £40bn to deal with soaring market prices amid fears of another wave of energy company collapses.

Prime minister Liz Truss, on her third day in office, said she wanted to make sure energy companies have the cash they need to buy energy if prices jump. Reports this week said British Gas owner Centrica was in talks with banks to secure extra cash as Vladimir Putin continues to choke off Europe’s supply of gas.

The bailout fund for energy companies was announced alongside a suspension of the energy price cap, which Truss replaced with an “energy price guarantee” to freeze household energy bills for two years. The government will also offer “equivalent support” for six months for businesses – most of whom have not received any financial aid to address the energy crisis prompted by Russia’s invasion of Ukraine.

Companies who use the Bank of England’s energy markets financing scheme will have to sign up to a “wider set of conditions”, the Treasury said. During the coronavirus pandemic support schemes some companies were banned from paying dividends after receiving loans.

Amid warnings energy markets were facing a “Lehman” moment, when a liquidity crunch precipitated the global banking crisis, the government said the scheme would provide “last resort” financing. The money will essentially guarantee that energy suppliers can pay for any power they commit to buying in the wholesale markets, as well as letting them insure themselves to protect against price rises.

Surging prices have prompted ballooning calls for collateral for energy trades, forcing even the largest suppliers to turn to their banks to increase their overdrafts. The governments of Sweden and Finland stepped in with similar measures at the weekend, with the Finnish economy minister saying: “This has had the ingredients for a kind of a Lehman Brothers of energy industry.”

Since the start of the energy crisis more than 30 suppliers have collapsed. That has left energy customers concentrated with bigger firms, whose collapse would probably cost the taxpayer billions of pounds. Some analysts believe that the largest collapse so far, of Bulb, could cost more than £4bn.

Officials are scrambling to draw up details of the scheme, but the government on Thursday said it may only be able to reveal a start date by the end of October. It is understood that further details of the scheme will be published next week.

Tim Speed, an energy specialist at law firm, Shakespeare Martineau said: “A £40bn liquidity fund provides some comfort for energy suppliers, but the support needs to start with immediate effect to stabilise the market. Further supplier casualties will end up costing consumers more.”

Since many of our energy 'suppliers' are foreign owned (or heavily invested in by foreign powers) this means that we are effectively handing money to other countries.

Remember that the BoE is a private enterprise (it is not government or state owned) and that the government has no money of its own and you can work out who is going to pay for this abysmal result of incompetence and lack of foresight by those we elect to serve and protect us.

Oh, it also goes back a bit longer than the Tories 12 years of sitting on their thumbs!

If I might just add a little postscript here...

Liz Truss used to work for Shell, and a little while ago received £100k as a donation to her leadership campaign from the wife of a BP executive.

You may wish to draw your own conclusions...?