Rishi Sunak Announces One-Off £200 Discount On Energy Bills To Help Counter Major Rise In Prices
8 min read
Rishi Sunak has announced new steps to offset energy price hikes after Ofgem announced the energy price cap would rise by £693 a year.
The Chancellor said without direct government action that households would find it "incredibly tough" to afford the increase in energy costs.
Ofgem announced the energy price cap, which places a ceiling on household bills, is to rise by 54% from 1 April because of wholesale gas prices, meaning average bills could reach £1,971.
Those on pre-payment meters – around 4.5 million, often more vulnerablel people – will see a rise of around £708 a year.
Sunak said around 80% of the £693 rise in prices was directly linked to the rise in wholesale energy costs.
Speaking to MPs on Thursday, Sunak said it would be "wrong and dishonest" to suggest people would not have to adjust to higher prices, but said the package would "take the sting out" of the major increase.
"Without government intervention, the increase in the price cap would leave the average household having to find an extra £693," he said.
"The actions I am announcing today, will provide to the vast majority of households, just over half of that amount – £350. In total, the government is going to help around 28 million households this year."
Sunak said the package would help provide around £350 in support, including an upfront discount of £200 and a further £150 rebate on council tax.
But he admitted the £200 discount would have to be paid back by households over the next five years.
"We will spread the worst of the extra cost of this year's energy price shock over time. This year, all domestic electricity customers will receive an upfront discount on their bills worth £200.
"Energy suppliers will apply the discount on people's bills from October, with the government meeting the cost in full. That discount will automatically be repaid from people's bills in equal £40 installments over the next five years."
He added: "This is the right way to support people, while staying on track with our plan to repair the public finances. And because we are taking a fiscally responsible approach, we can also provide more help, faster, to those who need it most.
"The second part of our plan. We are going to give people a £150 council tax rebate to help with the cost of energy in April, and this discount won't need to be repaid.
"I do want to be clear that we are deliberatly not just giving support to those on benefits. Lots of people on middle incomes are struggling right now too. So we have decided to provide the council tax rebate to those on bands A-D. That means around 80% of all homes in England will benefit."
Sunak said further funding of almost £150m would be provided to local authorities to help provide support to those on lower incomes.
"We are also confirming we will go ahead with existing plans to expand eligibility for the Warm Homes Discount by almost a third, so that 3 million households will also benefit from that scheme," he added.
Ministers had retained the previous cap, which runs from October until the end of March this year, despite a major surge in wholesale gas prices.
Sunak also failed to include measures called for by some Tory MPs, who had asked the Treasury to temporarily scrap or cover the cost of green levies which are placed on energy bills as a means of reducing the burden on households.
Prime Minister Boris Johnson said the government were taking action to tackle the "real and growing concerns people have about the cost of living".
"We are delivering a new package of targeted support to help with the financial pressures felt by families right across the country, with additional help for those most in need," he said.
"This builds on the changes we've made to Universal Credit to put £1,000 more per year into the pockets of hardworking people and the increase to the National Living Wage to advance our vision for a high-wage and financially secure Britain."
Opposition MPs had also urged Sunak to push for a windfall tax on energy firms, with Shadow climate change secretary Ed Miliband saying taxing oil and gas companies was the "right thing to do".
"With oil and gas profits booming in recent months, a windfall tax on North Sea oil and gas profits is the right thing to do," he said.
"It will tell you all you need to know about where government stands if it again rejects this proposal which could help the British people through this crisis."
Shadow Chancellor Rachel Reeves said the announcement would still mean millions of households would be forced to cut back to pay their bills.
"The uncomfortable truth for the Chancellor is that even after what he has 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," she said. "Millions of people cutting back to pay the bills."
"What do the government offer? A buy now, pay later scheme that loads up costs for tomorrow. High prices as far as the eye can see. This year, next year, and the year after that, give with one hand now and take it all back later."
The announcement came as the Bank of England announced an increase in interest rates from 0.25% to 0.5% with a warning that inflation will surge to more than 7% - the highest rate of inflation for more than 30 years.
Officials at the BoE said this would result in disposable household incomes being squeezed about 2% this year, increasing fears over the cost of living crisis.
But he received criticism from Tory MP Peter Bone who questioned whether the Chancellor had taken a "socialist" approach to curbing bills.
"Socialists believe in raising taxes and then choosing to give it back in the form of discount and rebates to selective people the Government think needs it.
"Can the Chancellor tell me why this approach, raising National Insurance Contributions, and then handing back money to people through rebates and discounts, is that a Conservative approach or a socialist approach?"
But Sunak said it was "right and responsible" to bring borrowing down.
"I also believe it is a Conservative approach to be responsible for our nation's finance," he said.
"It is right and responsible to get our borrowing down to sustainable levels ... but also to fund our country's number one priority, the NHS and an unacceptably high level of people waiting for operations.
"They should be reassured that every penny of that levy is going to the thing they care about most."
Tory MP Tom Tugendhat, the first backbencher to announce his intention to run in any future leadership contest, said the energy price hike alongside rising inflation would "begin to be felt across our country".
"April showers won't be cheap," he tweeted. "The sudden surge in the cost of heating will hit families across the country just as the new National Insurance tax kicks in. People need control of their lives by having control of their wallets - that's why lower taxes matter for every home."
Meanwhile, Labour MP Barry Sheerman accused Sunak of being the "most incompetent" Chancellor he had seen in his 43-years as an MP.
He said: "When children in my constituency go to bed with no food in their tummies, with no heat in their homes, what does he really think is the honourable position?"
Pointing to the recent admission that billions of pounds had been lost to fraud during the pandemic, he added: "A Chancellor who has just allowed £4.3bn to be taken through fraud ... Any other Chancellor I've know would come have come to the House today to resign."
Speaking last year, Energy Secretary Kwasi Kwarteng said the UK had secure supplies and would keep the cap through winter to protect against "wild spikes in prices".
Sunak will hold a press conference at 5pm to further set out the plans.
Speaking on Thursday morning, Foreign Office minister James Cleverly admitted some people were "always still going to struggle" with bills, but said the measures were aimed at "keeping people employed, making sure they have got money coming into their pockets through their pay packets".
"For some people they are always still going to struggle, we are very, very concious of that," he said.
"But we really hope the combination of general financial support – keeping people in work, making sure that work pays, supporting the people on the lowest incomes – and the very targeted measures specfically about energy costs will make sure that, we hope, the majority of people who are concerned about fuel bills get support."
Emma Pinchbeck, chief executive of Energy UK, said: "Of course it's right that the industry looks after its customers, it's a really shocking price rise for many people.
"Our point is, I don't think that the industry can do this alone and particularly not with the state of our retail sector in the UK."
We will spread the worst of the extra cost of this year's energy price shock over time. This year, all domestic electricity customers will receive an upfront discount on their bills worth £200.
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