Energy bills are set to rise for millions, with estimates suggesting households could see an increase of up to £600 in costs as the government plans to reduce financial support.
Chancellor Jeremy Hunt warned that the public should brace themselves for ‘very horrible decisions’ in the coming months as the energy price guarantee established by former Prime Minister Liz Truss is set to rise significantly.
The scheme, which ensured that households only pay an average of £2,500 on energy bills replaced the original Ofgem price cap, which was due to hit £3,500 by October. It was set to cost the government £60 billion.
But in Treasury budget plans, Mr Hunt has committed just £20 billion to extend the scheme by six months from April, from which point, average bills are expected to rise to between £2,800 and £3,100.
Chancellor Jeremy Hunt warned that the public should brace themselves for ‘very horrible decisions’ in the coming months
It is understood that Mr Hunt is currently looking at a multibillion-pound package to support pensioners and benefit claimants, keeping the most vulnerable households’ bills at around the same level as the £2,500 guarantee.
He warned that ‘people with the broadest shoulders will bear the heaviest burden,’ the Sunday Times reported.
But the wider population will eventually be hit by the hike in costs as the Government cannot subsidise bills ‘indefinitely’.
‘We have to be honest with people; it’s not possible to subsidise people’s energy bills indefinitely,’ Mr Hunt said.
‘In the end, if we want to be a low-tax economy we’ve got to find a way of not ending up with an entire second NHS in terms of the cost of our energy bills … which will drag down growth and so … that is something that you can expect to hear a lot about when I stand up [on Thursday]’.
He added that he will be playing Scrooge in the coming months ‘who’s going to do things that make sure Christmas is never cancelled’.
The plans will be revealed in the upcoming autumn budget, set to be announced next Thursday.
Mr Hunt has promised a statement which focuses on delivering ‘certainty’ to families and businesses, and is believed to be considering an extended freeze on income tax and national insurance thresholds.
He has also made clear that he believes a recession is now ‘likely’ after GDP shrank by 0.2 per cent over the course of two months from July to September this year.
Mr Hunt has promised a statement, due to be announced next Thursday, which focuses on delivering ‘certainty’ to families and businesses
It is understood that Mr Hunt is currently looking at a multibillion-pound package to support pensioners and benefit claimants, keeping the most vulnerable households’ bills at around the same level as the £2,500 guarantee
‘The question is not really whether we’re in recession, but what we can do to make it shorter and shallower,’ he said.
‘If we can, with the Bank of England, control inflation, then we will be able to contain the global rise in interest rates, contain the rises in mortgage rates that people are seeing, contain the cost of loans that businesses borrow, and have a chance of getting back on track.
‘But that stability is what has been missing – mainly thanks to (Vladimir) Putin’s invasion of Ukraine. This is a ‘made in Russia’ recession and we need to restore that stability as the first step to growth’.
The war in Ukraine has triggered an eightfold increase in global energy prices.
The UK spent £40 billion (or two per cent of GDP) on energy in 2019. By comparison, it is now set to spend £190 billion (eight per cent of GDP).
Mr Hunt is said to be preparing to announce several measures on tax including an extended freeze on income tax, national insurance, VAT, inheritance tax and pension thresholds for a further two years.
He also intends to half the tax-free allowance for capital gains tax and reduce the threshold for the 45p additional rate of income tax from £150,000 to £125,000.
He told the Sunday Times: ‘When you do a job like this, you have to do what is right for the country and the situation that we’re in and unfortunately that does mean tax rises.
‘What I can promise people is that I will be honest about the scale of the problem, and fair in the way that I address those problems,’ he added.
‘Britain is ultimately a fair country, a compassionate country, and we want to make sure that people can pay for their fuel bills this winter … and that is going to be very challenging for people on low incomes.’