Treasury preparing 11th hour package to soften
national cost of living crisis
Measures include £200 rebate on energy bills as
millions of households brace for record rise
The Treasury is also understood to be considering
doubling the payouts from an existing winter fuel payments scheme and extending
its reach to include more families.
Jillian
Ambrose and Rowena Mason
Wed 2 Feb
2022 23.25 GMT
The
Treasury is scrambling to complete 11th-hour plans capable of softening a
national cost of living crisis, including a £200 rebate on energy bills and
more help for the poorest households.
No 10 and
the Treasury have been under pressure from Tory MPs to act as millions of
households brace for a record hike in energy bills from April, and the prospect
of rising mortgage rates and tax increases.
With the
Conservatives sliding in the polls and Boris Johnson under fire over parties in
No 10 during lockdown, the prime minister and his chancellor, Rishi Sunak, met
to stitch together a multi-billion pound package to address concerns about
household bills.
Downing
Street repeatedly refused to comment on Wednesday on the idea of a £200
discount on energy bills, backed by a £5.4bn plan to make loans available to
energy suppliers which would be repayable over several years.
However,
the measures are expected to be a major plank of the package due to be
announced as soon as Thursday.
The
Treasury is also understood to be considering a targeted approach to help the
most vulnerable households by doubling the payouts from an existing winter fuel
payments scheme and extending its reach to include more households.
There were
also reports on Wednesday night that Sunak was poised to introduce a council
tax cut for the poorest households in bands A to C.
Ofgem, the
energy regulator, is to announce on Thursday morning a rise in the current cap
on energy bills will bring the steepest hike for default energy tariffs on
record. This threatens to catapult the average home energy bill to almost
£2,000 a year from April, from £1,277 over the winter, plunging millions into
fuel poverty.
In an
unprecedented move, Ofgem agreed to bring forward its scheduled announcement
for the new cap on default energy tariffs from Monday to align with the
Treasury’s plan to set out a series of measures to help ease the burden on
people.
But fuel
poverty campaigners fear the rescue package will fail to go far enough to help
Britain’s most vulnerable homes. The “heat now, pay later” scheme would do
nothing to help vulnerable people living in fuel poverty, according to a
spokesperson for the End Fuel Poverty Coalition.
“[The]
Ofgem price cap announcement, which will be somewhere between devastating and
catastrophic for millions of people across the country, could very quickly wipe
out any support these loans can provide,” the spokesperson said.
“The devil
will be in the detail of what the government has cooked up, but unless there is
sufficient support for the most vulnerable people, they won’t be able to
disguise the reality of millions more people being forced into fuel poverty,”
he added.
Households
can also expect mortgages and other borrowing to get more expensive as the Bank
of England tries to keep surging inflation under control.
The Bank is
widely expected to signal a hike in interest rates on the same day as the
energy announcement, dealing a double whammy to households paying off mortgages
and other debts. Banks and building societies are expected to respond
immediately by lifting variable rates.
Ministers
and central bankers have been forced to act as households brace for the
toughest squeeze on incomes in years. The official inflation rate reached 5.4%
in December, the highest level since March 1992, driven by soaring gas and
electricity prices and the higher cost of food and clothes.
Threadneedle
Street has warned that inflation could peak at close to 6% by April, three
times the 2% target rate set by the government.
The
Treasury is under pressure to cool the growing concerns over a nationwide cost
crisis by setting out a multi-billion pound cushion for hard-pressed people and
businesses, many of which are still reeling from the economic fallout of the
Covid-19 pandemic. However, Johnson and Sunak have resisted calls to scrap
April’s controversial £12bn increase in national insurance contributions.
Citizens
Advice has warned the government that, without action to support those on the
lowest incomes, hard-pressed householders would be pushed past breaking point.
In a “red
alert warning” before the expected energy price hike, the consumer group
revealed that the number of people seeking one-to-one crisis support from
Citizens Advice, such as referral to food banks and advice on emergency one-off
grants, reached its highest level on record last month.
More than
270,000 sought one-to-one advice from Citizens Advice, and the charity expects
numbers to rise once the energy price hike takes effect from April.
“Cost-of-living
pressures are at boiling point,” said dame Clare Moriarty, the chief executive
of Citizens Advice. “Frontline advisers are hearing desperate stories of
families living in just one room to keep warm, people turning off their fridges
to save money and others relying on hot-water bottles instead of heating due to
fears about mounting bills.”
The
consumer group said its data had reached “red alert levels” as the number of
people supported with energy debts climbed to more than 8,000 for the first
time, while the average energy debt climbed to a record £1,450, up from £1,330
in 2020.
“If the
government doesn’t act soon and bring forward a package of support for those on
the lowest incomes, many more households will be pushed beyond breaking point,”
she said.
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