Rishi Sunak is struggling to finalize a package of measures that could be announced as early as Thursday to alleviate the cost of living crisis, after the energy regulator said annual bills would likely rise more than 40% in October.
Ministers are under intense pressure to act after Ofgem CEO Jonathan Brearley wrote to the chancellor on Tuesday to tell him that the energy price cap, which puts a ceiling on national bills, could reach 2,800 pounds, an increase of more. of £ 800, after a sharp rise in April.
“The price changes we’ve seen in the gas market are really a one-off event in a generation that hasn’t been seen since the oil crisis of the 1970s,” Brearley told strategy committee lawmakers. business, energy and industrial (BEIS).
Treasury officials have been drawing up plans for an extraordinary tax that could fall not only on North Sea oil and gas producers, but also on electricity generators, including wind farm operators, which are also they have benefited from rising world prices in recent months.
It is likely to be used to fund a direct reduction in the energy bill as part of a package that could be worth up to £ 10 billion.
In addition to helping low-wage workers, Boris Johnson is believed to favor steps that will benefit middle-income earners, such as a VAT rebate or advancing a 1 percentage point reduction in income tax. that Sunak has promised for 2024.
The couple has opposing economic views and Conservative MPs have become increasingly frustrated because a clash between them has delayed radical action to help troubled families they see in the surgeries in their constituency.
Several cabinet ministers, including Energy Secretary Kwasi Kwarteng and Brexit Secretary of State Jacob Rees Mogg, have made their objections to an extraordinary tax clear, fearing it will deter investment.
Sunak had repeatedly said he was waiting for more information on what would happen to energy bills in the fall before setting out how the Treasury would respond, even suggesting it was “nonsense” to act sooner.
Following Ofgem’s intervention, the Resolution Foundation think tank warned of the potentially devastating impact of raising the limit. He said an increase of around £ 2,800 in October could mean 9.6 million households in England fall into fuel stress this winter, defined as spending at least a tenth of their total budget on bills alone. energy.
Shadow Chancellor Rachel Reeves said Ofgem’s warning was “extremely worrying”. She said: “[It] it will cause great concern for families already facing rising bills and rising inflation. How many more alarm bells should the chancellor hear before acting? The government must control this crisis and protect families and our economy. “
Several Westminster sources suggested that officials were now targeting an ad on Thursday. This momentum would allow the government to divert attention from Sue Gray’s report on the socialization of the blockade, which is expected to be released on Wednesday.
However, a Whitehall informant suggested that June 8 was a more likely date, as Sunak and Johnson have not yet signed up to firm policy proposals.
A Treasury spokesman stressed that nothing had been agreed yet, including whether an extraordinary tax should be passed. One person familiar with the department’s thinking said the package was expected to be “substantial” and would be aimed at the lowest paid.
A source number 10 also suggested that the measures were still being finalized. “There are several options that are being considered but no decisions have been made,” they said.
Charities and anti-poverty activists 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 living standards. some of the poorest households.
But Sunak said obsolete computer systems made it impossible. Whitehall sources also claim that the Treasury is reluctant to increase universal credit, having been stung by the battle to eliminate the £ 20 a week increase set during the pandemic.
It was widely believed that Sunak’s spring statement in March did not do enough to help families struggling to make ends meet, even some cabinet ministers frustrated because the £ 22 billion invested so far to alleviate the cost of living crisis have not been misdirected.
Kwarteng told lawmakers he hoped households would receive more help. “What we see now is not the full picture,” he told the BEIS committee. “Both the Prime Minister and the Chancellor have said there will be more announcements in due course.”
Kwarteng added: “These interventions may not solve all the problems that consumers face, but they will address this cost of living problem.” Johnson said last week that the government would “throw its arms around the people” as it did during the pandemic.
A Treasury spokesman said: “We understand that people are struggling with rising prices, and while we can’t protect everyone from the global challenges we face, we are supporting British families to navigate the coming months. with a £ 22 billion support package. ”
Energy prices raised 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 or warming their homes.
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Jonny Marshall, a senior economist at the Resolution Foundation, said: concentrating on both low- and middle-income households means that it is clear how the government should guide political support.
“The benefit system is clearly the best way to support the hardest hit people in the short term, either through early improvement or global payments to help poorer households cope with the difficult winter ahead.”
Friends of the Earth called on the government to use an extraordinary tax to fund an immediate plan to insulate homes. “Existing plans to boost the UK’s energy supply and reduce costs are simply not moving fast enough,” he said. “There is a growing need for emergency support for those unable to cope with rising energy prices, while a free street-to-street insulation program is aimed primarily at households with difficulties could help reduce bills quickly before next winter. The government can help finance it today by taxing the excessive profits of fossil fuel companies. “