First, the scheme would mean that customers pay less when wholesale prices are high, but more than they would have in the future when prices fall. This smoothing of bills over time will always be helpful, but it’s important for people to understand that any savings made now will be offset later.
Second, it would always be better (and potentially cheaper) to target more support to those who really need it. The suggested savings (perhaps £200 per household) would still leave many poor families struggling with their bills. This program is therefore expected to be part of a larger package including additional help for low-income households, such as an additional top-up to the Warm Homes Discount (although that looks likely to be part of the final announcement as well).
Third, the taxpayer will bear the risks of fluctuations in wholesale energy prices and the risks of non-repayment of loans. This might be justified in an emergency. But in general, companies should be expected to manage and hedge their own exposure to variations in their costs, and it’s not the government’s job to do that for them.
Fourth, the proposed scheme is described as “temporary” and “self-funding”, but it can’t really be both. The regime would need to be in place for an uncertain but likely long period if taxpayers are ever to get their money back.