UK household energy bills to rise as Hunt redraws support scheme

The energy bills of millions of British households are set to rise by more than £100 a month from April next year, after new Chancellor Jeremy Hunt announced major changes to the government’s bailout package.

Hunt confirmed on Monday that the energy price guarantee, announced in September and capping average annual household bills to £2,500, would last through the winter. But he said that from April aid would target “the most vulnerable”.

The decision to cut support to six months – Liz Truss had promised the price freeze would last for two years – comes as the prime minister wants to calm financial markets destabilized by her ‘mini’ budget.

A full Treasury-led assessment will determine how the government will ration aid going forward, but the timing has yet to be confirmed.

Hunt said the new measures would cost “significantly less” than the previous estimate of £150 billion to help households and businesses over the next two years and prioritize energy efficiency measures.

The revised program is expected to help at least 8 million low-income households with benefits such as universal credit, tax credit and retirement credit. Last year they were given a one-off payment of £1,200 to help them amid the cost of living.

All households will continue to receive a £400 credit on their energy bills between October and April next year.

Beyond that, however, ministers must pass a test to determine which households deserve to cut their energy bills, especially as millions of middle-class families struggle with rising mortgage rates.

Wholesale prices for natural gas and electricity remain exceptionally high, meaning bills for any household not receiving government support next year would rise significantly.

Investment bank Investec said on Monday that without a government subsidy, the average annual household bill between April and June would likely be close to £4,000 – 60 per cent higher than the government’s current cap.

Energy consultancy BFY Group predicted that the typical annual bill, based on current forward prices, would be £4,500 in April. It warned that the rise could pose risks to middle-class households not included in the targeted support.

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“While a focused program could provide more sustainable support in the longer term, there is a ‘stretched middle’ that earns too much for normal support, but not enough to pay the £4,500 utility bill,” said Matt Turner, a consultant at BFY .

Adam Scorer, head of the National Energy Action charity, said that “the government has created enormous uncertainty for households in seeking the confidence of the markets”.

Labor MP Darren Jones, chairman of the House of Commons’ Business, Energy and Industrial Strategy Selection Committee, urged the government to gradually phase out support for households and invest more in reducing energy consumption.

“Any end to support for all bill payers needs to be phased out, rather than facing a cliff,” Jones said, adding that a national home insulation plan needs to be accelerated.

In addition to rising energy costs, households can no longer look forward to falling income taxes. Hunt on Monday indefinitely postponed proposals to lower the base income tax rate from 20p in the pound to 19p and reversed a planned cut in the dividend tax.

One of the few “mini” Budget tax measures to survive the cull was the decision to abolish the health and social care tax, meaning national insurance rates for millions of taxpayers won’t rise in April.

While Hunt made no commitment to increase benefits next year in line with inflation, he pledged to “prioritize the most vulnerable” and did not rule out future spending cuts or tax hikes. “There will be more difficult decisions,” he added.

Tax experts think these tax increases could include reinstatement of measures to increase national insurance for higher taxpayers, when Hunt announces a medium-term debt relief plan on Oct. 31.

The cuts in stamp duties also remain. Home buyers in England and Northern Ireland now pay no stamp duty on the first £250,000 of a property’s value – double the previous threshold of £125,000. New buyers, meanwhile, pay no tax on the first £425,000, up from £300,000 previously.

In another break with his predecessor Kwasi Kwarteng, Hunt vetoed the alcohol tax freeze, meaning excise taxes will rise in February in line with the retail price index. Tax-free shopping plans to attract foreign tourists were also shelved.

Additional reporting by Nathalie Thomas in Edinburgh


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