Economists demand urgent action on energy bills to avert ‘catastrophe’

 

Economists demand urgent action on energy bills to avert ‘catastrophe’

 

Millions of vulnerable people will be harmed without radical policies to ease cost of living crisis, say experts

 

Larry Elliott Economics editor

Thu 25 Aug 2022 00.01 BST

https://www.theguardian.com/money/2022/aug/25/economists-urgent-action-energy-bills-winter-policies-price-freezes-taxes-cost-of-living-crisis

 

Physical and financial harm will be caused to millions of vulnerable families unless the government takes action to avert a winter catastrophe by cutting energy bills, leading economists have warned.

 

In the run-up to the announcement of the new energy price cap tomorrow the Resolution Foundation thinktank said radical policies such as price freezes, solidarity taxes or lower social tariffs were needed to prevent the cost of living crisis worsening.

 

Pressure on the government to act also came from disability charities and the business lobby group, the British Chambers of Commerce, which warned of widespread company failures without Covid-style emergency support.

 

The BCC said time was running out as it outlined a five-point plan to soften the impact of rising energy costs.

 

The calls came as the energy regulator Ofgem is preparing to reveal a new price cap for October that is likely to rise from just under £2,000 a year to more than £3,500 a year. The cap was at £1,277 last October, meaning bills will have more than doubled in a year.

 

Labour said neither Liz Truss nor Rishi Sunak had come up with serious proposals, after the rivals to succeed Boris Johnson as prime minister rejected calls by the head of Scottish Power for a two-year freeze on energy bills costing £100bn.

 

Sunak said he was “nervous and sceptical” about the plan, while a government source close to the Truss campaign said the proposal was “irrelevant” because both candidates had ruled out a price freeze.

 

Families caring for a child or adult with disabilities have been left “frustrated” by the cost of living crisis, with more than 70% having been plunged into debt, according to research for the national disability charity Sense. Four in five (83%) disabled households said the government was not doing enough to help.

 

The Resolution Foundation said Truss’s tax-cutting plan “completely misses the target”, while Sunak’s plan failed to help struggling working families outside the benefits system. The thinktank said: “Typical energy bills will cost around £2,000 more this year than last year – money that many families simply don’t have.”

 

It called for a new social tariff under which people claiming benefits or where no one in the household earned more than £25,000 would receive a 30% bill reduction.

 

Alternatively, the Resolution Foundation said the government could announce a universal cut in bills partly offset by a solidarity tax – a 1% increase in income tax that would fall most heavily on those on higher incomes.

 

Jonny Marshall, a senior economist at Resolution Foundation, said: “A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain. We are on course for thousands to see their energy cut off entirely, while millions will be unable to pay bills and build up unmanageable arrears.

 

“The new prime minister will need to think the unthinkable in terms of the policies needed to get sufficient support to where it’s needed most.

 

“Significant additional support should be targeted at those most exposed to rising bills and least able to cope with them, and be watertight so that no one falls through the cracks. But none of the proposals from the leadership candidates or the opposition parties currently do this.

 

“An innovative social tariff could provide broader targeted support but involves huge delivery challenges, while freezing the price cap gives too much away to those least in need. This problem could be overcome with a solidarity tax on high earners – an unthinkable policy in the context of the leadership debates but a practical solution to the reality facing families this winter.”

 

Shevaun Haviland, the director general of the BCC, said she had written to Johnson, Nadhim Zahawi, the chancellor of the exchequer and both Truss and Sunak expressing concern for businesses and households.

 

“Today I have written to the prime minister, chancellor of the exchequer and both Conservative party leadership candidates expressing my concern for businesses and households during these challenging times.

 

“At over 10%, CPI inflation is at a 40-year high, interest rates are seeing the largest increase in 27 years and eye-watering energy bills have created a perfect storm of increasing costs. The impact of these challenges on consumers, businesses and wider society cannot be overstated.”

 

The BCC said firms could not afford to wait another month without practical support measures being put in place as it called for a temporary cut in VAT for businesses from 20% to 5%, the same rate paid by domestic users, a Covid-style government emergency energy grant to subsidise costs for small and medium-sized enterprises and a temporary reversal of the increase in national insurance contributions.

 

Across the UK, hundreds of small traders are closing their doors, as energy contracts expire and they are quoted unaffordable rates for new energy deals. The Federation of Small Businesses has warned of a “lost generation” of entrepreneurs unless ministers step in with immediate help.