The Treasury is working on a menu of options to tackle Britain’s cost of living crisis ahead of an emergency mini-budget set to take place within two weeks if Liz Truss replaces Boris Johnson as deputy Prime Minister.
With opinion polls and bookmakers’ odds showing Truss the clear favorite to move into 10 Downing Street next week, officials are drawing up plans that would see the new government move quickly on bills and longer-term energy market reforms.
Truss said she wanted to announce a package by the end of September, but Parliament will go into recess on September 22 for the party’s conference season. That would leave the Chancellor, who is expected to be Kwasi Kwarteng, just over a fortnight to choose from a range of measures.
The Treasury admits the £15billion support package announced by Rishi Sunak in May will be insufficient given the subsequent increase in the cap on average household energy bills and the likelihood of a further large increase in January. He’s picked up signals from Camp Truss that she intends to do more to help households facing soaring gas and electric bills this winter.
The new Chancellor will receive a detailed briefing which will include forecasts for the cap, the likely impact on bills, the impact on different groups of households and ways to target support.
The mini-package of measures would include reductions in national insurance contributions, the scrapping of planned increases in corporation tax and the temporary abolition of green levies on energy bills – all of which figured prominently in the Truss campaign – along with further action deemed necessary in view of the 80% increase in the energy price cap to over £3,500 due on October 1. Truss’ tax liabilities alone cost £30bn.
Sources said the civil service was considering the proposals of the two Tory leadership candidates, with the government machine ready to respond “very quickly” once the new prime minister was chosen.
Options will be to make the program announced by Sunak in May more generous and more narrowly focused on low-income households. Choices also include changes to Universal Credit and a scheme proposed by Stephen Fitzpatrick, the director of Ovo, Britain’s third-largest energy supplier, that would lower household energy bills for limited use. Under this plan, energy consumption above a certain level would be charged at a higher price; Fitzpatrick said the program would channel support to poorer consumers because higher-income households typically used more energy.
The need for speed will likely mean that a full budget will be drafted for later in the fall, by which time the Independent Office for Budget Responsibility will be ready with new forecasts for the economy and public finances.
The date for the emergency budget has not yet been set, but September 21 has been mooted. If Truss wins the leadership race, she would return from New York that day after attending a meeting of the United Nations General Assembly.
Kwarteng, currently business secretary, has recently been in close contact with UK energy companies and has been looking for ways to address some of the structural problems in UK wholesale energy markets. Two possible reforms have been launched by the Chancellor, Nadhim Zahawi.
Energy regulator Ofgem announced this month that it is changing its price cap methodology to allow suppliers to recoup wholesale energy hedging costs sooner – a move that will add several hundreds of pounds to bills to prevent energy suppliers from going bankrupt.
Zahawi said he was working with the Bank of England to “provide better liquidity in the wholesale energy market”, which could help lower the price cap by £400-500.
Kwarteng is believed to be backing this initiative and a separate plan that would involve renegotiating contracts with some renewable energy providers to reflect the fact that their profit margins have soared during the crisis.
Some industry observers have suggested renegotiating existing “revolving bond certificates” for nuclear power plants, wind farms and biomass projects in favor of contracts for difference, which would reduce prices and provide stable income for long term to electricity producers. Industry body Energy UK said such a proposal could reduce energy bills for homes and businesses.
In an interview with Sky, Zahawi said he was considering the option of a deal with companies developing power from other sources, such as renewables, for “a voluntary contract for difference… at a lower price”, but said it would be “not ready”. until next winter. Zahawi said: “There are no easy options. It’s the only thing we know.