Rishi Sunak is scrambling to finalize a package of measures that could be announced as early as Thursday aimed at easing the cost of living crisis, after the energy regulator said annual bills could rise by more than 40% in October.
Ministers are under intense pressure to act after Ofgem chief executive Jonathan Brearley wrote to the Chancellor on Tuesday to say the energy price cap, which caps domestic bills, was likely to hit 2 £800 – an increase of more than £800 – after a sharp rise in April.
“The price changes we have seen in the gas market are truly a unique event in a generation not seen since the oil crisis of the 1970s,” Brearley told MPs on the Business, Energy and Industrial Strategy (BEIS) committee. .
Treasury officials have drawn up plans for a windfall tax that could hit not only North Sea oil and gas producers, but also electricity generators, including wind farm operators, who have also benefited of the surge in world prices in recent months.
This will likely be used to fund a direct energy bill rebate as part of a package that could be worth up to £10billion.
Alongside targeted help for low-wage workers, Boris Johnson would favor measures that would benefit middle-income earners, such as a cut in VAT or bringing forward the one percentage point cut in income tax. income that Sunak promised for 2024.
The couple have competing economic visions and Tory MPs are growing frustrated that a standoff between them has delayed sweeping action to help the struggling families they see in surgeries in their constituency.
Several ministers, including Energy Secretary Kwasi Kwarteng and Brexit Opportunities Secretary Jacob Rees Mogg, have made clear their objections to a windfall tax, fearing it will discourage investment.
Sunak had repeatedly said that he was waiting for more information on what would happen to energy bills in the fall before defining the Treasury’s reaction, even suggesting that it was “foolish” to act before that.
After Ofgem’s intervention, the Resolution Foundation think tank warned of the potentially devastating impact of the cap increase. He said an increase of around £2,800 in October could mean 9.6 million families across England would fall into fuel stress this winter, defined as spending at least a tenth of their total budget on energy bills alone.
Shadow Chancellor Rachel Reeves said Ofgem’s warning was “extremely concerning”. She says: “[It] will cause enormous concern for families already dealing with skyrocketing bills and rising inflation. How many more alarm bells does the Chancellor need to hear before acting? The government must get this crisis under control and protect families and our economy. »
Several Westminster sources have suggested officials are now aiming for an announcement on Thursday. This moment would allow the government to distract from the Sue Gray report on the socialization of the lockdown, which is due to be published on Wednesday.
However, a Whitehall insider suggested June 8 was a more likely date, with Sunak and Johnson yet to sign firm policy proposals.
A Treasury spokesman stressed that nothing had yet been finally agreed – including whether to go ahead with a windfall tax. A person with knowledge of the ministry’s thinking said the package needed to be “substantial” and target the lowest paid.
A No 10 source also suggested the metrics were still being finalized. “Several options are being considered, but no decision has been made,” they said.
Charities and anti-poverty campaigners have called for an increase in benefits, after the 3.1% increase that came into force in April led to a significant reduction in real terms in the living standards of some of the poorest households. poor.
But Sunak said outdated computer systems made that impossible. Whitehall sources also say the Treasury is reluctant to increase Universal Credit, having been stung by the battle to scrap the £20-a-week increase put in place during the pandemic.
Sunak’s spring declaration in March was widely seen as not having done enough to help families struggling to make ends meet, with even some cabinet ministers frustrated that the £22billion spent so far now to alleviate the cost of living crisis have been poorly targeted.
Kwarteng told MPs he expected households to receive additional help. “What we see now is not the complete picture,” he told the BEIS committee. “The Prime Minister and Chancellor have said there will be further announcements in due course.”
Kwarteng added: “These interventions may not be able to solve all the problems that consumers are facing, but they will go some way to solving this cost of living problem.” Johnson said last week that the government would “throw its arms around people” as it had during the pandemic.
A Treasury spokesman said: ‘We understand that people are struggling with rising prices, and although we cannot protect everyone from the global challenges we face, we are helping British families navigate in the coming months with a £22bn package of support. ”
Energy prices pushed the consumer price index (CPI) to 9% in April, fueling criticism that the government has failed to protect millions of low-income families from having to choose between feeding themselves or heating their homes.
Jonny Marshall, senior economist at the Resolution Foundation, said: ‘The scale and depth of Britain’s cost of living crisis means the government needs to provide significant additional support urgently. The fact that the crisis is so heavily concentrated on low- and middle-income households means it is clear how the government should target policy support.
“The benefit system is clearly the best way to support those most affected in the short term – whether through an early reset or lump sum payments to help poorer households weather the difficult winter ahead.”
Friends of the Earth have called on the government to use a windfall tax to fund an immediate program to insulate homes. “Existing plans to boost the UK’s energy supply and cut costs are simply not moving fast enough,” he said. “It is clear that there is a growing need for emergency aid for those who cannot cope with rising energy prices, while a street-by-street insulation program targeting struggling households first could help reduce bills quickly before next winter. The government can help fund this today by taxing the excess profits of fossil fuel companies.