Rachel Reeves eyes up energy bill cuts for struggling households in Budget

The Chancellor promised 'targeted action to deal with cost of living challenges' as she eyed up a reduction in the VAT on fuel bills, which currently stands at 5 per cent.

It is one of several proposals set out by Ms Reeves ahead of her November 26 statement, where she will look to tackle soaring inflation while balancing the books.

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An energy bill cut would save households an estimated £86 a year, but cost the Treasury as much as £1.75 billion.

Some of the green levies added to energy bills could also be lowered in order for Ms Reeves to fulfil her promise, as they cost families more than £200 a year.

However, that could prove too expensive as the Chancellor looks to fill a £50 billion black hole in the public finances.

Ms Reeves admitted inflation was "too high" as she attended the annual meeting of the International Monetary Fund (IMF) in Washington.

Prices rose 3.8 per cent in the 12 months to August, with food prices costs ramping up sharply.

The IMF warned UK inflation is set to surge to the highest in the G7 group of developed democracies in 2025 and 2026.

"We do want to bear down on the costs people face, and are looking at a range of policies in the Budget to further that," Ms Reeves told reporters.

She said the Government 'has a role' in 'areas of regulated prices' such as energy bills.

Households' average annual bills rose to £1,755 this month as watchdog Ofgem raised the energy price cap by two per cent.

Octopus, the UK's biggest energy supplier, also warned that prices would rise by 20 per cent within four or five years if the Government does not intervene.