The Treasury is considering a council tax rebate scheme as part of Chancellor Rishi Sunak’s plans to ease the pressure on UK households this spring.
Market regulator Ofgem is set to update the consumer price cap this morning, with analysts Cornwall Insight expecting the cap to increase by over 50 per cent, meaning energy users could be charged nearly £2,000 per year for average use.
The Chancellor is expected to follow up the gloomy announcement this afternoon with a rescue package for consumers, which reportedly consists of a hefty £6bn loan scheme funded by public money, and targeted measures to help poorer families.
According to The Telegraph, this could include council tax savings – where the levy would be temporarily cut in the lowest property bands.
Three government sources told the newspaper the plan was being seriously assessed, and was being pushed by Michael Gove, the Levelling Up Secretary.
Many of the beneficiaries will live in former “Red Wall” constituencies that the Tories won from Labour in the 2019 election.
There has also been persistent speculation that the government will expand its Warm Home Discount scheme, which currently provides 2.2m of the UK’s poorest households with a £140 saving.
The plans follow market carnage over the past four months, caused by a brutal combination of the price cap and soaring wholesale costs.
This has driven up household energy bills, causing 26 suppliers to collapse since last September, and Bulb Energy’s to enter de-facto nationalisation.
Government turns to the taxpayer to fix industry crisis
Many Tory MPs and peers had been pushing for the Chancellor to scrap VAT and green levies, suggesting such measures could create a £200 annual saving.
However, their calls appeared to have fallen on deaf ears with the government committed deeply to a net zero agenda over the next three decades.
The government, despite ostensibly favouring free markets, has instead dipped its hand into the public purse again to resolve an industry crisis.
There is an element of risk in the proposals, as the idea of suppliers swooping in to re-collect £200 from households depends entirely on gas prices returning to lower levels.
This remains an open question – with many analysts fearing wholesale costs are effectively baked into the market.
There has also been disagreement within the industry, with Octopus Energy’s chief executive Greg Jackson calling for costs to spread over time in line with the rumoured proposals.
However, Utilita Energy’s chief executive is more sceptical, and thinks that expanding already established social support schemes makes more sense than denying the reality of rising household bills.
While the proposed loan scheme will offer households a £200 rebate, and the council tax plans could also contribute to potential savings, it is unlikely that the Treasury’s plans will be enough to cover the full increase in household energy bills.
Energy bills have exacerbated the wider cost of living crisis, as the Bank of England is also expected to announce an increase in interest rates on Thursday – potentially from 0.25 per cent to 0.5 per cent.
This would be the second interest rate rise in three months.