The “vast majority” of households will get government help on their energy bills to the tune of £350 to partially offset soaring prices as a part of a £9bn package announced by Rishi Sunak today.
The announcement comes as Ofgem today announced an increase in the energy price cap from April, which will mean the average household now pays £1,971 a year on their energy bills – a £693 increase.
It comes as the Bank of England announced today that it now expects inflation to hit 7 per cent this year – which would be a 30-year high – and as it rose its interest rate to 0.5 per cent.
Every household will get a £200 rebate on their energy bills from October, which will be paid back in five £40 installments over the next five years.
Those living in houses that are in council tax bands A to D – around 80 per cent of the population – will also get a £150 tax rebate to help with the cost of living crunch.
The chancellor said his plan “is fair, it is targeted, it is proportionate, it is the right way to help people with energy costs”.
“It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest,” Sunak told the House of Commons.
“What we can do is take the sting out of a significant price shock for millions of families.”
Sunak also announced that a £150m “discretionary fund” will be given to local authorities to distribute to “those lower income households who happen to live in higher council tax properties and households in bands A to D exempt from paying council tax at all”.
The government will also go ahead with plans to extend the eligibility for the £140 Warm Homes Discount to include an extra 3m people.
Labour and some Tory backbenchers are calling for the government to cut VAT on energy bills – a power the UK has now it has left the EU – after Boris Johnson said during the Brexit referendum that this was a policy the UK should pursue.
Shadow chancellor Rachel Reeves said the measure would save households £100 a year.
“I thought the Prime Minister with his unblemished record of integrity would defend the commitments he has made, but instead it’s another pledge thrown on the bonfire of broken Tory promises,” Reeves said.
“The uncomfortable truth for the chancellor is that even after what he announced today, families in Britain will be still paying hundreds of pounds more for their energy, including some of the poorest families, from April as a result of the breathtaking rise in energy prices just announced by Ofgem.
“A buy now, pay later scheme that loads up costs for tomorrow.”:
Sunak said cutting VAT on energy bills “would disproportionately benefit wealthier households and that there would be no guarantee suppliers would pass on the discounts to all customers”
“Overall, of course, this package will not stop average incomes and living standards from falling over the coming year.”
Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said: “The support is very broad based, with little direct targeting of resources on the poorest and those most in need. That said, it is better targeted than either a VAT or NI reduction would have been.”
Energy bills are soaring in the UK due to the global price of gas quadrupling in the past year due to a number of factors, including surging industrial demand for gas post-Brexit and Russia’s move to reduce supply to Europe.
A particularly cold winter last year also depleted storage.
The UK is particularly damaged by the global price rises as much of the country’s household energy and electricity comes from natural gas.