Rishi Sunak finally unveiled a new cost of living bailout today with every household expected to get hundreds of pounds off their skyrocketing bills.
The Chancellor is announcing a new aid package for struggling families after watchdogs warned that the Ukraine crisis means energy costs will soar again this fall, by more than 40 per cent.
He confirmed that the government is making an extraordinary U-turn by imposing a windfall tax on the soaring profits of oil and gas companies, after weeks of wrangling in Cabinet. But he said the levy will be “temporary” and there will be big tax breaks for companies that invest. Sunak laid out the grim scenario with inflation at its highest point in 40 years, saying the government cannot “solve all the problems” but will not let people “go back so far that they may never recover.”
He warned that inflation was taking hold, saying: “Over the course of the year, the situation has evolved and become more dire.”
“I know the governor and his team will take decisive action to make sure inflation is back on target,” he said.
Mr Sunak was interrupted with cries of ‘what took you so long’ and ‘about time’ after he began his statement by noting that high inflation is causing ‘acute distress’ for people in the country, adding: ‘ I know you are worried, I know people are struggling.
He told the House of Commons: ‘I trust the British people and I know they understand that no single government can solve all problems, in particular the complex and global challenge of inflation.
“But this government will never stop trying to help people, to fix problems where we can, to do the right thing, like we did during the pandemic.”
Ministers are also keen to put the Partygate scandal behind them, after Sue Gray’s report demanded that Boris Johnson take responsibility for his staff drinking, vomiting and fighting in Downing Street when the rest of the country was under brutal lockdown restrictions. lockdown. The Treasury has been dismissing claims the package will be worth £30bn, but it is expected to leave a significant dent in public finances as the windfall tax is likely to raise around £7bn. millions. Rishi Sunak today unveiled a cost of living bailout scheme that aims to provide financial assistance to help every household in Britain pay rising energy bills.
With energy prices set to soar again this fall, the Chancellor will step in and announce additional measures, financed by a one-time tax on oil and gas giants, to ease the pressure on household finances. Ofgem’s expectation for the power cap in October is £2,800 for a typical family, compared to £1,972 at the moment. Before April it was only £1,277 Prime Minister Boris Johnson, flanked by Rishi Sunak (right) at a cabinet meeting on Tuesday, is understood to have worked out the terms of the multi-billion dollar package with the chancellor.
How does the energy price cap work?
The energy price cap puts a limit on how much a supplier can charge for its predetermined rates.
That includes the ongoing charge and the price of each kWh of electricity and gas, which are used to calculate bills. Ofgem expressed the cap as a cash figure for how much a typical home can expect to pay annually.
However, total bills can be much higher for many homes, since it depends on how much energy you use. The average used by Ofgem is a household of 2.4 people, who consume an average of 242 kWh of electricity and 1,000 kWh of gas per month. Before April, the cap was set at £1,277. But amid sky-high wholesale prices, it was later increased to £1,972. But today, Ofgem chief executive Jonathan Brearley predicted it will reach £2,800 when it is reviewed again in October. This means that it will have more than doubled in the space of just six months. Mr Sunak and the Prime Minister finalized the support package yesterday after measures were accelerated amid concerns the government was at risk of losing touch.
After announcing the new package to MPs in the House of Commons before doing media interviews. The move is an attempt to quell growing unease among Conservatives, particularly since the 2019 admission. They have been demanding more action for voters struggling to make ends meet as inflation continues to rise. Sunak had planned to wait until July to present the package, when Ofgem will be able to give a more precise estimate of the likely peak price increase in October.
But, in a highly unusual move, the head of the energy regulator revealed this week that he was writing to the Chancellor immediately to tell him that the cap is likely to rise to £2,800. Brearley said that while the figures were “uncertain” the situation had deteriorated and the expectation for the new level was £2,800 for a typical family, compared with £1,972 at the time. Before April, it was just £1,277.
He also admitted that there is a risk that prices could rise further if there are further disruptions from the standoff with Russia. IFS director Paul Johnson warned that a large spending package could boost inflation.
‘There is a very strong case for gifts to help those who struggle the most. But if you’re going to do that, because of the dangers associated with inflation, there are reasons to raise taxes elsewhere so that there isn’t a significant amount of additional money sitting around in the economy,” he said. Now we have some tax increases this year, so the Chancellor is already taking some money out of the economy.
“But I think you need to think quite a bit about that balance and the risks associated with inflation. What you generally don’t want to deal with in the face of a lot of inflation is throwing a lot more money into the economy. Despite the ambitious package of measures, the government is likely to still face pressure from critics, who will say ministers could go further amid an impending energy cap hike from October.
Ofgem chief executive Jonathan Brearley revealed his latest estimate for the price cap while giving evidence to MPs in the Business Committee. The Treasury collected £50.2bn in taxes in April, £5.5bn more than in the same month last year after the national insurance hike came through. Government tax collection is now significantly higher than before the Covid-19 pandemic The average price of diesel and unleaded petrol at UK service stations is shown in this graph with data going back six years. Fuel prices are displayed at a Shell petrol station on Hadfield Road in Cardiff earlier this month.
Those in council tax bands E to F do not receive the £150 refund announced by Chancellor Rishi Sunak earlier this year.
Former Ofgem boss admits he could have done more to avert the crisis
A former chief executive of Ofgem, Dermot Nolan, admitted that the regulator could have stopped some of the sector’s failures “if we had moved faster”.
Dermot Nolan, who led the regulator between 2014 and 2020, said the ‘body politic’ wanted Ofgem to prioritize competition over regulatory oversight due to the enduring involvement of ‘Big Six’ companies (98 per cent to 99 per cent) From the market. .
Nolan said that since around 2015 “many” new companies entered the market under a “permissive” regime “encouraged by the government but also by a conscious decision of the Ofgem board”. However, from 2017/18 it became clear that “in certain cases, companies had entered the market in a speculative way that was probably not reasonable, it was not fair and we needed to do something about it”.
Consumer groups said the prediction would strike “terror” into the hearts of millions of householders.
It comes as the budgets of millions of families are likely to tighten further over the next year, with inflation exacerbating pressures being felt from record gasoline, energy and food prices.
Petrol has become around 41 pence a liter more expensive in the last 12 months, adding around £23 to the cost of filling up a typical 55-litre family car. RAC fuel spokesman Simon Williams said the price of petrol has reached “another unfortunate milestone”.
“While wholesale prices may have peaked for the time being last week, they are still worryingly high, meaning there is no respite from the record prices that are contributing so relentlessly to the cost of living crisis,” he said. .
New analysis has also shown that four million “average squeezed” households are currently missing out on the same level of government assistance handed out to others in the face of skyrocketing bills. Among them is a widower in his 80s who only eats two meals a day to save on food costs. Caroline Abrahams, director of charities at Age UK, told MailOnline that the council tax refund was “not close enough” to address the cost of living crisis. He warned that falling incomes are “pushing millions into deep financial hardship and leaving them unable to afford the basics.”
Boris Johnson promised yesterday to do “everything we can to help people” during the crisis, but warned that the pressures on household finances will last “a while longer”. The Prime Minister said yesterday at a press conference: ‘We will continue to respond as we responded during the pandemic. It will not be easy, we will not be able to fix everything, but what I would also say is that we will get through it and we will get through it well.
“There is no doubt that we now have pressure on household finances… and the Government will do everything it can to help people.”
Whitehall sources pointed to a speech Sunak gave last week saying the government has “a collective responsibility to help the most vulnerable in our society”. A Treasury spokesman said: “We understand that people are struggling with rising prices, which is why we have provided £22bn of support to date.”