As the UK economy continues its recovery from the pandemic, we must confront the global inflationary pressures caused by the world economy finding its feet once more.
The rising cost of energy is due to increased demand worldwide, which drives inflation and feeds through into pressures on the cost of living.
These problems are global so we must accept the limitations in the government’s capacity to deal with them.
In recognition of the pressures facing households, steps have already been taken such as: reducing the Universal Credit taper rate, increasing the National Living Wage, freezing fuel duty for the twelfth year in a row, and launching a £500 million Household Support Fund to help the lowest-income households with their bills.
However, it is clear that we must go further to help families with the increasing cost of living, while accepting that, over time, households will need to adjust to higher energy costs.
The government can help ensure the adjustment to higher prices is smaller initially and spread over a longer period, thus minimising the pressures on the cost of living.
Today, Ofgem have confirmed that the energy price cap will rise by £700 from April. In response, the government has announced a three-part plan to help with household fuel bills immediately and protect people against half of this increase.
This help is worth £350 per household, in a total package of support worth £8.6 billion, and is comprised of the following:
(1) A £200 ‘smoothing’ rebate on energy bills for all households, to be paid back over the next five years at £40 per year – starting from April 2023
(2) A non-repayable £150 cash rebate for homes in Council Tax bands A-D – equivalent to 80 per cent of all households, helping both lower and middle-income families
(3) £144 million of discretionary funding for local authorities to support households not eligible for the council tax rebate
This package provides more generous support to most households faster than other proposals.
Throughout the pandemic, the government’s policies have benefitted the poorest the most. Distributional Analysis published at Autumn Budget 2021 shows the decisions of this government over this Parliament have been highly progressive and most benefitted those on lower incomes.
This is also true for the government’s interventions during the pandemic, which evidence shows supported the poorest households the most.
The package announced today is similarly progressive, with larger payments going to lower income households as a proportion of net household income.
Additionally, over this Parliament we are investing over £3 billion to help improve energy efficiency in almost 500,000 low-income, fuel poor households – delivering average bill savings of nearly £300 every year.
This is being delivered through:
- Social Housing Decarbonisation Fund: saving homes £270 per year, worth £3.8 billion for 250,000 vulnerable households, with no cost to the tenant as the upgrade is funded by landlord and government
- Home Upgrade Grants: £10,000-£25,000 government grants delivered through councils, with only a one-third contribution from landlords, saving homes £350 per year for 246,000 homes
- Boiler Upgrade Scheme: £500 million to provide nearly 100,000 households with a £5,000 grant to replace their boiler with low carbon heating technologies
To support households at risk of fuel poverty through their bills, the government is also providing:
- Warm Homes Discount: £140 rebate on energy bills each for over 2.2 million low-income households. The government is continuing with plans to increase the rebate to £150 and expand eligibility by one-third to 3 million vulnerable households
- Winter Fuel Payments: £300 for 8 million pensioners, worth £2 billion
- Cold weather payments: £25 per week in cold weather, supporting 4 million vulnerable households
- Energy Company Obligation: £290 saving on bills for 133,000 people in fuel poverty, worth £1 billion
I am assured that Ofgem and the government have been working closely the energy industry and consumer groups to support customers through this difficult time and I urge anyone worried about paying their energy bills to contact their supplier and access the support available.
This is work in progress, but the government is committed to using the levers at its disposal to help households in the face of increasing living costs.
I will continue to monitor developments in this area.
