What options does Rishi Sunak have to help with soaring energy bills?

Pressure is building on the government to act over bills as part of the wider cost of living crisis. Ben Chapman looks at the measures that could make a difference

The chancellor has previously said he cannot ‘protect people completely’ from the rising cost of living (PA)

Pressure is building on Rishi Sunak to announce financial support that will help people through the UK’s cost of living crisis.

The chancellor has resisted calls to increase benefit payments or give larger discounts off energy bills. He has signalled he will wait until the autumn budget to offer tax cuts.

But, what are the options at his disposal?

VAT cut

The Liberal Democrats are backing a reduction in VAT on household energy bills from 5 per cent to zero.

The move would cost around £2.5bn and save the average energy customer £90 a year. However, it would not be targeted at those most in need, with wealthier households also seeing a benefit.

Windfall tax

Labour is pushing the government to bring in a one-off tax on North Sea oil and gas producers, who are among those to have benefited from big increases in prices this year.

According to estimates from the Labour Party, the tax could collect £1.2bn for the Treasury, which could be used to help people struggling with rising living costs.

That figure is only a small fraction of the extra costs that Britons will be hit with this year.

Energy bill grants

Sunak’s announcement earlier this year of a £200 cut to energy bils has been widely criticised because the money saved will be recovered through a levy on bills of £40 a year for the next five years.

It is also not targeted at people on lower incomes who are being hit hardest by increases in living costs.

The chancellor could turn the cut into a grant that would not be repayable.

Increase warm homes discount

The Treasury is reportedly looking to make the existing warm homes discount scheme more generous.

It offers people on lower incomes a £150 reduction on their bills but this could increase to as much as £600, according to The Times. That would be expensive for the government but would have the advantage of being much more targeted.

Increasing universal credit

There is broad consensus among a number of think tanks, politicians and anti-poverty campaigners that the best way to help people and make the best use of taxpayers’ money, would be for the government to increase benefit payments.

This would be the simplest way to get cash to the right people.

However, the chancellor has been reluctant to agree. This week he re-emphasised his preference for tax cuts over increases to benefits payments.

It would be seen as a U-turn after the government scrapped a £20 uplift to universal credit introduced during the pandemic.

Tax cuts

The chancellor could scrap a 1.25 percentage-point increase to national insurance contributions but he has already partially rowed back on the tax hike.

In his spring statement he announced changes to the policy that were ostensibly designed to help people on below-average incomes. So, any further changes would benefit people who are already relatively well-off.

The government is said to be looking at bringing forward a planned 1p cut to income tax that’s due to be introduced in 2024. Again, this would be a poorly targeted measure.