Britain’s cost of living crisis is likely to intensify from Thursday as the energy regulator prepares to raise the maximum price of home energy bills by up to 50% above current record highs.
The price cap is expected to reach almost £2,000 a year, up from an average of £1,277 this winter, to reflect the recent surge in gas market prices that has inflated supplier costs – and caused many to go bust.
Officials across Whitehall have been locked in talks with industry bosses for months and the watchdog Ofgem to draw together a set of measures which could cushion households against rocketing energy bills and a cost of living crisis.
But what steps could the government take in the face of a global energy crisis? Here are the most popular options to emerge:
A government-backed £200 off bills
Industry sources believe the Treasury may be poised to help cut £200 from energy bills by offering suppliers government-backed loans that could be repaid over several years.
The £5.4bn plan would protect household budgets from a breakneck increase in their average energy bill from 1 April when the new price cap takes effect. But it could mean energy bills remain higher for longer as suppliers charge more to pay back their loans in the years ahead.
The plan, first reported in the Times, was described as “entirely plausible” by one industry source, who asked not to be named, and is seen as one of the most likely measures.
More support for vulnerable households
In addition to the Treasury’s broad-brush plans it is likely to also take a targeted approach to helping the most vulnerable households by doubling the payments offered by the warm home discount.
The scheme provides a one-off annual payment of £140 towards electricity bills for households on low income or receive certain pension benefits between October and March.
Currently 2.2 million households qualify for the support, but the government is expected to extend the scheme by making more households eligible and doubling the payment to help cover surging energy costs.
It is usually paid for via a levy on standard energy bills, but industry bosses have warned the government against using better-off households to fund the expanded scheme. The top-up should instead come from the government’s coffers, they say.
A VAT holiday
Energy suppliers and consumer groups have called on the government to scrap the 5% VAT rate on energy bills for months. The quick fix is considered a simple way to knock around £100 a year off an annual energy bill of £2,000 and has won support from the Labour party too.
But the proposal has failed to win the favour of Boris Johnson, who last month described the measure as a blunt instrument. The prime minister said cutting VAT would “end up also cutting fuel bills for a lot of people who perhaps don’t need the support in quite the direct way that we need to give it”.
He is understood to favour plans to target support for hard-pressed families instead.
Lower policy costs
The cost of supporting government policies and green schemes currently adds about £159 to the average household energy bill, leading to calls for the Treasury to help households by shouldering the burden instead.
Consumer rights campaigners have long argued against the “regressive” tax policy, which puts a disproportionate burden on fuel-poor households, and called for the government to pay for the schemes through general taxation.
The Treasury is also reportedly considering scrapping some green policy levies, including the Eco scheme that pays for insulation improvements for fuel-poor homes. The proposals have triggered outrage from consumer groups, climate campaigners and the home insulation industry, which argue that the scheme adds only about £29 to the average household bill.
A windfall tax on polluters
Calls for the government to fund an energy bills cut from a windfall tax on the companies that have benefitted from the global gas crisis emerged shortly after the Spanish government set out plans to do so.
Its plan targets oil and gas producers and fossil fuel generators, which have made booming profits from the surge in global market prices. It won favour with the Labour party and energy bosses including the founder of Ecotricity, Dale Vince.
The business secretary, Kwasi Kwarteng, said at the time that all options were being considered, but the measure is understood to be a non-starter for the Treasury, which is wary about shaking business confidence after the Covid-19 economic slowdown and rising inflation.
