John Healey is planning a major intervention to cut energy bills for poorer households at this month’s budget, after ministers became alarmed at forecasts which show bills rising by hundreds of pounds in January. The chancellor is working on plans to spend more than £1bn to help energy consumers, the bulk of which is likely to go towards increasing the discount given to households on certain benefits. Sources say final decisions have not been made, but Healey is set to rebuff a call by the energy secretary, Miatta Fahnbulleh, to spend billions more on removing levies from bills altogether.
Energy officials are working up more radical changes to bills, however, which could be implemented after the budget and would change how much companies could charge customers, rather than subsidising their bills. If approved, the energy discount will form a major plank of the budget, which government sources say will be low-key but focused on reducing voters’ cost of living. The chancellor is facing a cash crunch as he looks for money to fund an additional £4.7bn in defence spending and to rebuild his fiscal buffer, which has been eroded by higher borrowing costs.
He is likely to raise taxes to pay for the additional spending, and is rumoured to be looking at higher bank taxes in particular. Government sources had previously insisted the VAT cut to electricity bills which Andy Burnham announced soon after becoming prime minister would be the last support to be offered this year. But they have become increasingly concerned by forecasts showing that the Iran war will push the energy price cap up by as much as £442 in January – entirely eroding the impact of the VAT cut.
As a result Healey has been considering submissions from the energy department on how to ease the pressures on households in the coming months. The most likely solution is understood to be increasing the warm homes discount – a £150 discount to energy bills offered to households on certain benefits. Healey is understood to be considering increasing this by a further £100, which would be funded by taxpayers, rather than bill-payers as the existing discount is.
Fahnbulleh, meanwhile, has been pushing for more sweeping action to reduce bills for all consumers by as much as £120 by removing all levies. Under the energy secretary’s proposals, the levies, which fund renewable energy and efficiency schemes, would be paid for through taxation instead. She told the Guardian last week: “If we want a system that is resilient, if we want a system that can cope, if we want a system that ultimately can deliver the diversity of energy that we want, what is the fairest way in which we pay for it?
So we have to ask that question. Every other country is asking that question, and ultimately we’ve got to come to a fair deal.” Removing levies from bills would reduce inflation, but would cost as much as £3.2bn and would be difficult for the government to unwind should energy costs come down in the future. Officials in the energy department are working on more radical proposals for after the budget, meanwhile, including proposals to reduce tariffs for poorer households or ones that use less energy.
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