Ministers have been warned that energy bills will cost more than two months’ wages next year unless new help is given to households, as Chancellor Nadhim Zahawi told firms they must invest their “extraordinary” profits or face bankruptcy. face the threat of additional taxation.
The TUC has stepped up calls for the government to scrap October’s energy price cap increase, saying this winter’s cost of living crisis is an “emergency of pandemic proportions”.
He also called on trade unions and business leaders to help the government find solutions, as they did in developing the leave scheme.
Monthly take-home pay for the average worker will be £2,054 next year, based on Bank of England forecasts, while annual energy costs are forecast to be £4,200.
Treasury officials are working on a number of options for the next prime minister, which could include extending the windfall tax on oil and gas companies announced by Rishi Sunak earlier this year to power generation.
But front-runner to become next prime minister Liz Truss has made it clear that this is not a path she intends to take.
The Tory leadership candidates again clashed bitterly over economic policy at an event in Cheltenham on Thursday night, with Sunak saying the Truss’ tax-cut approach to the energy crisis risked leaving millions of Britons in “real destitution”.
New analysis by the Tony Blair Institute also showed how the aid proposed so far by applicants is unlikely to affect rises.
The Trust’s plan to reverse the recent rise in National Insurance contributions will save households on the lowest incomes an average of just 76p a month, it has found. But that would leave the UK’s richest households £93 a month better off.
Chancellor Nadhim Zahawi meeting with energy companies in Downing Street. Photo: Kyle Heller/No10 Downing Street
In an article for the Times, Sunak said he was ready to find up to £10bn to help households this winter. But the TBI said Sunak’s plan to cut VAT on fuel would save the typical household only around £14 a month.
Boris Johnson made a surprise appearance at Thursday’s energy roundtable with electricity firms to stress that the government is watching how they use their big profits.
A Treasury source said Zahawi stressed that “everything is on the table and all options will be taken very seriously to make sure the next prime minister has them at his disposal and can act quickly.”
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The source said there was “no getting away from the fact that these are extremely significant profits and also profits that were not achieved as a result of shrewd business acumen”.
The chancellor told firms including Centrica, Scottish Power and EDF that the impact of families unable to pay their bills was “not just a government problem”. He said businesses would also bear the brunt of this and that it was “in their interest to reach solutions”. A source present at the meeting said this was widely understood by the energy chiefs present.
Kwasi Kwarteng, the business secretary also present at the talks, is skeptical of further taxation of windfall profits and is tipped for a future chancellor. An industry source said it was “clear that a windfall tax is not a preferred option for anyone – ministers or electricity companies”.
The Prime Minister’s short-lived presence at the planned meeting raised some eyebrows in Whitehall, with one source suggesting it was a PR exercise. They added that the long-planned meeting could not reach agreement within the constitutional limits of an outgoing prime minister who does not make major fiscal decisions.
Key figures criticized the government for not acting immediately, including MoneySavingExpert’s Martin Lewis and former prime minister Gordon Brown.
Among those attending the meeting were Chris O’Shea, chief executive of British Gas owner Centrica, Keith Anderson, chief executive of Scottish Power, and Simon Rossi, head of EDF Energy in the UK.
The Treasury said all ministers had stressed the need to find new ways to help vulnerable customers. The crisis talks came with fresh predictions that Ofgem could raise the energy price cap to £5,038 next April.
Johnson, Zahawi and Kwarteng also urged companies to use their huge profits to invest more in North Sea oil and gas and in renewable energy sources such as biomass.
The TUC said the government should cover the cost of the £1,500 increase for households – a move estimated to cost £38.5bn – but said the government should then take energy firms into public ownership, requiring new pricing structures .
Also on Thursday, Labor said it would scrap the “premium” which causes people with prepaid meters – who are often on low incomes – to be charged more than direct debits.
Around 4 million domestic customers use prepaid meters, while their price cap is around 2% higher than for direct debit customers, according to Ofgem figures.
Rachel Reeves, the shadow chancellor, said: “It is outrageous that people with pre-paid meters should be paying more for their energy. Why should those with the least pay more to heat their homes and keep the lights on? It is unjustified and morally wrong.”
The announcement is the first part of what the party has promised will be a “more comprehensive package” on the energy crisis, which Reeves is working on with Keir Starmer and which will be released in the coming days.
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