Minister challenged over VAT cut for families facing energy bill price hike

2 February 2022, 21:46 | Updated: 3 February 2022, 11:22

Government minister reacts to energy price hike

A minister said the government is “very conscious” of how the cost of living crisis is going to hurt struggling families but refused to confirm a possible cut to VAT.

James Cleverly's comments come as millions of people are braced for a large increase in energy bills - reportedly up to 50 per cent.

Mr Cleverly told Nick Ferrari at Breakfast: “We recognise the real-world impact of some of these global phenomenon.

“We’ve already got a number of support packages in place to specifically help with heating bills.

“We’ve also got things like the change to the taper rate of universal credit, the increase in living wage, which will put about £1,000 into the pockets of working people.

“We are very, very conscious of how this will hurt some people. The Chancellor is taking a very close interest.”

“Why not cut VAT or scrap the green levy,” Nick asked.

“We need to make sure we are able to pay for an inevitable energy transition,” said Mr Cleverly.

“We are looking to support people in a targeted way.”

Chancellor Rishi Sunak is expected to outline a number of support measures in a press conference later today.

Ofgem is set to announce a huge increase in its price cap at 11am, heaping even more pressure on already stretched households.

There is growing speculation that the Treasury is considering a multibillion-pound move to protect households from the full brunt of the increase - slashing £200 from household energy bills in order to soften the blow.

According to the Times, Mr Sunak will commit to giving households in council tax bands A to C rebates funded by Government grants under targeted measures for poorer households.

The Treasury did not rule out the move nor did it deny that the Chancellor could announce state-backed loans to give all homes a discount on their energy bills of £200.

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The energy regulator will announce how much bills for around 22 million households can rise from the beginning of April, reflecting a huge jump in wholesale gas prices and the cost of dozens of suppliers that have gone bust in recent months.

Former Executive Director for Consumers and Markets at Ofgem Mary Starks told LBC the rise in gas prices was a "global phenomenon" and that they would stay high "for a while yet".

"This is a global phenomenon, high energy prices," she told Nick Ferrari at Breakfast.

"Energy demand has really bounced back after the pandemic and supply has not kept pace so this is a pressure that is being felt around the world.

"There's obviously tensions around Russia and Ukraine [that] aren't helping with that.

"Analysts are anticipating that gas prices could stay high for a while yet."

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The authority's crunch decision - which is expected to be the steepest ever increase in household bills - will be announced at 11am on Thursday.

The new cap will come into force from 1 April.

Millions currently have their energy bills capped at £1,277 a year for an average household, however experts have warned bills are expected to soar in line with the hike in price cap.

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Cornwall Insights, a specialist energy consultancy, thinks the price cap will be set at £1,915, which would add £600 to the average annual household heating bill.

That would put household bills 51% above the current level.

Ofgem declined to comment on the estimates.

The Bank of England could also announce a rise in interest rates on Thursday, adding to the agony.

To help struggling families deal with the blow, a £5bn to £6bn government-backed loan scheme is set to be launched by Rishi Sunak, allowing suppliers to borrow money to cover upfront energy costs.

Households could be offered discounts of around £200 to help cover the rise and energy firms are likely to be given loans to help them cut customers' bills.

It follows warnings some elderly people are switching off their heating or not showering over fears of soaring bills.

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Age UK said nearly a quarter (24 per cent) of older people believe they will be forced to choose between heating their home and the food they buy if their energy bills increase substantially.

More than half (54 per cent) of those surveyed said they would have to heat their home less, a survey for Age UK found.

One 69-year-old woman told Age UK: "I am currently in bed keeping warm today as it's so cold and I can't afford to have my heating on for the whole day.

"I'm reduced to showering on alternate days, which I hate, and I'm eating food that's microwaveable to avoid heating my oven."

If the cap is increased to £2,000 a year, as expected, it would be the biggest jump since it was introduced in 2019. Ofgem had already raised it by 12% in August for the period from October 2021 to March 2022 to reflect higher wholesale prices.