UK energy crisis: Rishi Sunak signals little appetite for bill relief as prices rise

Solutions could include cutting VAT on bills and offering loans to energy suppliers

An energy bill reading at a home in London, Britain. Conservative MPs say the UK is causing energy prices to increase faster than any other comparable country due to taxation and environmental levies. EPA
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Britain’s Chancellor of the Exchequer Rishi Sunak has warned fellow Conservatives that there is only so much support the government can offer households facing rising energy bills.

Any help would be directed at those facing fuel poverty, he said.

Business Secretary Kwasi Kwarteng will lead a new round of talks with industry leaders on Wednesday to offset further issues after more than 20 energy suppliers went bust last year, as British households face a cost-of-living catastrophe amid rising taxes, higher bills and inflation.

The talks aim to find a solution for households grappling with high bills, after wholesale gas prices – which had begun to drop in recent weeks as traders received vital gas shipments from the US – jumped 24 per cent to £2.14 ($2.88) on Tuesday, well above long-term averages of about £0.50.

The government recognises people are struggling with higher bills, with Prime Minister Boris Johnson saying at a press conference on Tuesday that Mr Sunak was “mindful” of the issue.

“We are going to do what we can to help,” he added.

However, Mr Johnson said he will not cut VAT on energy bills because it would mainly benefit the wealthy, therefore helping "a lot of people who, perhaps, do not need the support".

Britain's wholesale gas prices are at more than three and a half times the level they were at the start of last year, which in turn has raised energy prices across the board as the UK is heavily dependant on gas-based electricity generation.

Adam Scorer, chief executive of fuel poverty charity National Energy Action, said rising prices will be "pretty catastrophic for millions of households", to which the government has not given a "proportionate or significant response".

He called on the government to make the poorest exempt from paying higher bills in the short-term, while a long-term solution must be to better insulate homes.

British households are already facing “the year of the squeeze” in 2022 as inflation and higher taxes eat into their incomes, according to the London-based Resolution Foundation.

Real wages will effectively stagnate next year, rising only 0.1 per cent, with families set to be worse off by £1,200 a year from April when a price cap on energy bills is raised, causing bills to double, and a tax increase comes into effect.

Resolution Foundation chief executive Torsten Bell sounded warning bells over the fact that two such big changes are coming on top of each other at a time when wages are not rising significantly, with the "squeeze" on living standards set to be so severe that Mr Sunak will come under intense pressure to act to alleviate the economic pain.

The business department is considering a number of options to help households cope with higher bills, including offering loans to energy companies, which they can use to help customers, or extending discounts to the most vulnerable households.

Meanwhile, about 20 Conservative MPs and peers have asked Mr Johnson and Mr Sunak to slash VAT on energy bills and suspend the environmental levy, which funds renewable energy initiatives, to save the average household £200 on their energy bill.

The letter sent to The Sunday Telegraph is signed by politicians including Craig Mackinlay, chairman of the Net Zero Scrutiny Group of Conservative MPs, former work and pensions secretary Esther McVey and MPs Robert Halfon and Steve Baker.

Conservative politician Robert Halfon, who was among the signatories of the letter, said more decisive measures are needed.

"This is not the government's fault. This is because of the international price of energy and I strongly believe, given that the price cap is going to go up this year in the spring, that the government should look at other measures," he said.

The letter to the prime minister says the UK is causing energy prices to rise faster than any other comparable country due to "taxation and environmental levies".

Trade body Energy UK said that Ofgem and the government must urgently consider "a range of potential measures" to deal with rising bills.

"Millions of households are currently protected by the energy price cap. Suppliers have already provided hundreds of millions of pounds in financial assistance since the start of the pandemic and the industry will continue that support this winter," a representative said.

"However, there is only so much suppliers can do in the face of rising gas prices – policy and network costs, VAT and the sheer cost of buying gas make up the majority of the bill.”

Octopus Energy chief executive Greg Jackson said providers must work together to "privately finance" solutions, while investing in renewable energy infrastructure would decrease bills in the future.

"The more renewables we build, the better the payback for that societal investment. We really are on the cusp of energy bills falling every year. It sounds crazy because of where we are today," Mr Jackson said.

Updated: January 05, 2022, 10:22 AM