Chancellor of the Exchequer Rishi Sunak arrives to deliver his 'Mansion House' speech at the Financial and Professional Services Address, previously known as the Bankers dinner, at Mansion House in London, Britain July 1, 2021

Chancellor reportedly looking at how to ‘abate energy costs’

Image credit: Stefan Rousseau/Pool via REUTERS

Chancellor Rishi Sunak is preparing an announcement on how the Government plans to “abate energy costs,” according to Prime Minister Boris Johnson, amid growing concerns about cost-of-living pressures affecting millions of people.

Boris Johnson and Rishi Sunak have thus far resisted calls from both senior Conservatives and opposition parties to ditch plans to raise National Insurance rates from April in order to fund extra health spending.

The Prime Minister and the Chancellor both committed to imposing the 1.25 percentage point hike in a joint article in The Sunday Times, published at the weekend, but Johnson has separately signalled that support could be coming down the line to help consumers with soaring energy bills.

Ofwat, the UK's energy regulator, is expected to announce the steepest-ever rise in the energy price cap later this week - a move widely expected to push energy bills for millions of households to around £2,000. The cap is scheduled to rise in the Spring, potentially increasing bills by 50 per cent, according to predictions.

This follows six months of record high prices in the energy market, triggered by the global gas crisis. Consumers are now paying over 50 per cent more for energy than they were in 2020. Ballooning gas costs have come as household budgets are stretched by inflation, which jumped to a near 30-year high of 5.4 per cent in December.

While governments in other European countries - including France, Italy, Germany, Spain, Sweden, Norway and the Netherlands - have already implemented measures to ease the economic effect of rising energy costs on their populations, the UK has, to date, offered nothing similarly constructive or beneficial.

Johnson, speaking to broadcasters on a vist to Tilbury Docks, Essex, said his administration understands the “pressures that the cost-of-living crunch is putting on people,” particularly when it came to energy concerns.

“We’re going to be bringing forward… I know the Chancellor is looking at a package of things to abate energy costs,” he said.

Increasing the national living wage and cutting the taper rate on Universal Credit, along with a £12bn support package, would help people through the current fiscal demands, Johnson argued, “but you’ll be hearing more from the Chancellor in due course”.

The Prime Minister claimed: “The best way to help people with the cost of living is to have high-wage, high-skilled jobs and that is one of the benefits we are seeing from Brexit.”

A post-Brexit policy idea that picked up support from Johnson and Levelling-Up Secretary Michael Gove when they spearheaded the Vote Leave campaign in 2016 was removing VAT from energy bills.

A Treasury minister said he could not rule out enacting the suggestion to help with cost-of-living pressures, but argued it could have a “disproportionate benefit” for the wealthiest.

Chief secretary Simon Clarke told BBC Radio 4’s Today programme: “If you go with a blanket cut in VAT, then the risk is that the benefit of that accrues disproportionately to the wealthiest in society, because they will tend to have larger homes, larger energy bills and will therefore reap the disproportionate benefit from such an intervention. We would rather target our support more closely to need.”

He added: “I’m not ruling it out, but I am saying that is not something that at this moment in time we are leaning towards, because we don’t think it is a well-targeted measure.”

A report out today from liberal conservatism think tank Bright Blue has urged the chancellor to shift the burden of taxes from the workplace to wealth. This report follows separate economists' analysis showing that the proposed National Insurance hike will dispropotionately affect those people earning less than £50,000 a year, with those people earning around £20,000 hit the hardest in real terms. People earning over £100,000 will be the least affected, paying proportionately less of their total salary, despite paying more overall.

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