Two of the UK’s biggest energy suppliers have thrown their weight behind a plan being debated in the industry to devise a fund that could freeze customer bills for two years.
The British Gas owner Centrica and Octopus Energy are understood to support a scheme that would create a multibillion-pound facility to spread the cost of an emergency funding package over a decade, the Guardian can reveal.
Their fellow suppliers ScottishPower and Eon have presented plans to ministers for the “tariff deficit fund” underpinned by a government guarantee.
Under the proposals, first reported by the Sunday Times, commercial banks would put cash into the state-backed fund, which suppliers could then draw on to fund measures to freeze customers’ default-tariff bills at the current price cap, £1,971, for two years.
The cost of the scheme would then be paid back over 10 to 15 years through a surcharge on bills or via taxation.
It is understood the Centrica chief executive, Chris O’Shea, voiced support for the idea at a meeting between ministers and energy bosses on Thursday last week.
Sources said several solutions to raise funds to tackle bills were presented by companies to Boris Johnson, as well as the chancellor, Nadhim Zahawi, and the business secretary, Kwasi Kwarteng, at the meeting.
They were to either double the existing package announced by the former chancellor Rishi Sunak, which will cut £400 from the bills of every household, or to use the government or private sector funds to freeze the price cap, with the creation of the deficit scheme part of that option.
The Octopus chief executive, Greg Jackson, told the Guardian “urgent action” was needed and the tariff deficit fund was among the options the government should consider taking.
He said: “Because of the war in Ukraine, the UK is having to pay £51bn extra for its gas – the equivalent of 9p on the basic rate of income tax.
“Urgent action is needed to help people through this winter, whether it be a doubling of the existing government support scheme, freezing the price cap, or a private-sector initiative like the tariff deficit proposal.
“And we need concerted effort to reduce the problem by next winter through more efficiency, renewables, gas storage and market reform.”
A spokesperson for Centrica declined to comment on discussions with government, but said: “It’s clear a significant intervention is needed to protect customers. There are many ideas being discussed but each needs to be assessed carefully to ensure it’s in the customer’s long-term interest and to avoid any unintended consequences.”
The approval of two suppliers with more than 10 million customers combined adds significant weight to the gathering momentum behind the deficit plan.
The initiative echoes similar financial support introduced during the pandemic, when the government backed emergency loans for companies.
It is understood Barclays and NatWest examined previous plans to introduce a similar scheme earlier this year.
The ScottishPower chief executive, Keith Anderson, proposed a plan along similar lines in spring, but Sunak instead opted to use a windfall tax on North Sea oil and gas operators to fund part of his £15bn support package.
The Labour leader, Keir Starmer, has proposed a beefed-up windfall tax as part of a £29bn plan to stop people having to pay “a penny more” on fuel bills this winter.
Industry executives said that the Conservatives – currently gripped by a leadership contest between Sunak and Liz Truss – needed to act rapidly to ensure any support measures were introduced before higher bills kicked in this autumn.
The energy regulator Ofgem is due to announce the level of the price cap on 26 August. The new cap, estimated to be as much as £3,582, will then be introduced on 1 October.
“That gives us 35 days to send out price change notices to customers and implement the new cap into our system. The longer the government leaves it, the greater the confusion will be. The carnage could be extreme,” the chief executive of one supplier said.