The government price cap on standard variable energy tariffs has been named as one of the causes for Big Six energy supplier Npower axing 900 jobs.
The German-owned company has forecast heavy financial losses for 2019, and has also cited ‘intense competition’ as another reasons its letting go of 15% of its staff in the UK.
Npower announced that it will be consulting with employees within the next month. However, a high number of redundancies is not anticipated as the usual rate of staff turnover should account for a large proportion of the cuts.
Chief executive Paul Coffey placed part of the blame on the number if smaller firms who have cropped up in recent years with prices that are impossible to sustain over the long term. Over ten smaller energy firms have gone out of business in the last twelve months alone, with Ofgem being forced to introduce more stringent regulations to prevent newcomers from entering the market without solid financial backing.
Coffey said: “the retail energy market is incredibly tough. Ofgem forecasts that five of the big six energy companies will make a loss or less than normal profits this year owing to the implementation of the price cap. And with several recent failures of new energy suppliers, it is clear that many have been pricing at levels that are not sustainable.
“Even with these reductions, we still forecast significant losses this year but we’re doing everything we can to minimise them whilst continuing to focus on service and value for our customers.”
Npower’s parent company, Innogy SE, has warned that the supplier’s losses will affect the group’s annual profits to the tune of £218m. Npower had been in long-term talks for a merger with SSE’s retail arm, but disagreements over investment capital caused the deal to fall through in December. The business has subsequently been prepped for a transfer to E.ON in a convoluted swap of assets between E.ON and Innogy SE – predicted to cause further job losses towards the end of 2019.
The trade unions denounced the cuts at Npower and warned that it was merely the beginning for job insecurity in the energy sector. Matt Lay of UNISON said: “it’s just the tip of the iceberg – Npower isn’t the only firm struggling. The UK’s entire retail energy market is broken and in need of an urgent fix.”
The government had a slightly different take on the causes of the cuts, blaming inefficiency within energy companies rather than the price cap. The price cap, introduced in January of this year, is predicted to lead to £1bn worth of savings for energy consumers. However, an increase in the cap is anticipated next week, costing over 11m homes an extra £100 annually.
A spokesperson for the Department for Business, Energy and Industrial Strategy said “our price cap protects 11 million households from poor value standard variable and default tariffs and ensures that consumers pay a fair price for their energy. Ofgem designed the energy price cap independently, through consultation with industry, so that an efficient supplier can continue to thrive.”