If Liz Truss or Rishi Sunak want to maintain current levels of Government help for families through the cost-of-living crisis, they will need to find an additional £23 billion this year and a staggering £90 billion the next year, according to a top think tank.
The Institute for Government (IfG) has assessed the enormous expenditures that the future prime minister will have to manage if they wish to maintain the generosity of the current assistance for struggling Britons.
With eight million of the poorest families receiving $1,200 in assistance, Boris Johnson offered all households a £400 reduction on their energy costs in May of this year.
However, since the Prime Minister announced that help, energy costs have continued to rise, with estimates for the average annual bill now at £3,600 in October and closer to £5,000 in January.
The typical home would spend around £900 more on energy costs between October and March of the following year than was anticipated when May’s assistance package was revealed, according to the IfG’s calculations.
According to their analysis, current government assistance would have been sufficient to cover 90% of the anticipated rise in home energy costs this fiscal year, according to predictions made in May.
However, the think tank said that since energy costs are now anticipated to rise significantly, the present package of help is “now only adequate to cover about 50% of the increase.”
They estimated that in addition to the £33 billion currently allocated for the package, expanding existing subsidies to account for rising energy costs would cost an additional £23 billion.
“The incoming government would need to spend an extra £23 billion if it wished to offset over 90% of bill rises this fiscal year while maintaining the generosity of the May 2022 package,” the think tank’s analysis said.
It also predicted that the cost rise would be cut in half, to £10–12 billion, if ministers decided against increasing universal assistance and instead focused on helping low-income families, retirees, and people with disabilities.
The IfG said that the next PM “will need to be ready to give extra help again” in light of recent predictions that energy costs are expected to soar once again next year.
According to their research, “Offsetting the same percentage of bills next year will cost almost £90 billion.”
| April 2022: £1,971 | October 2022: £3,582 | January 2023: £4,266 |
|---|---|---|
| £1,000 | £1,820 | £2,160 |
| £1,500 | £2,730 | £3,240 |
| £2,000 | £3,640 | £4,320 |
| £2,500 | £4,550 | £5,400 |
| £3,000 | £5,460 | £6,480 |
| £3,500 | £6,370 | £7,560 |
| £4,000 | £7,280 | £8,640 |
| Source: This is Money, based on Cornwall Insight energy price cap forecasts 9/8/2022 | ||
Should any of the two Tory candidates for the party’s top job win the election next month, they have pledged to provide further assistance to low-income families dealing with rising energy costs.
The IfG, however, said that their recommendations would “make just a minor dent in the expenses presently predicted this winter.”
While Mr. Sunak pledged to lower the VAT on gas and electricity prices, Ms. Truss promised to reduce the green taxes on energy bills.
According to the report, “Both candidates for prime minister have pledged to take some action on energy bills, but policies committed to so far… would save approximately £150 to £200 per year on average energy bills, only enough to offset approximately 10-15 of the increase in the forecast for bills this winter that has occurred since May.”
As she puts her tax-cutting goal first, Ms. Truss has lately softened her resistance to committing to further “handouts” for families.
This week, the Foreign Secretary gave a hint that she will provide further assistance to those with “fixed incomes.”
The former chancellor who put up May’s support package, Mr. Sunak, has pledged greater assistance for retirees and people on benefits, but he has not yet provided a dollar amount for that additional assistance.
If Sir Keir Starmer, the leader of Labour, were to become prime minister, he promised to maintain energy costs at their present level of around £2,000 annually.
The IfG calculated that this would cost little over £40 billion over the course of six months, but that it would also result in reduced energy prices for families, which would lessen their motivation to practise energy conservation.
One of Ms Truss’s closest friends, Business Secretary Kwasi Kwarteng, is said to have discussed a £100 billion plan to address the cost-of-living problem last week.
He met with Scottish Power CEO Keith Anderson to talk about a business idea for a new “deficit fund” that would essentially hold bills steady for the next two years.
In accordance with the conditions of the suggested industrial plan, the government would guarantee loans to providers so they could offer customers energy that was significantly subsidised.
When it is envisaged that global energy costs would decline in the coming years, the loans will be progressively repaid through a charge on family bills.
‘Energy costs have increased considerably again in recent weeks and are now anticipated to remain higher for longer than originally predicted,’ said Olly Bartrum, a senior economist at the IfG.
‘One of the most pressing issues the next administration will have to deal with is deciding whether and how to assist consumers and companies with these expenditures.
This may need significant more investment this winter and much more again the next year; even restricting assistance to the most in need might cost several billion pounds.
“If the Government wishes to prevent such costly assistance packages in a future that is likely to be characterised by extremely variable energy costs, it should also do more to promote better energy efficiency and restructure energy markets to lessen susceptibility to high energy prices.”