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Sunak to unveil emergency aid over soaring household energy bills

Rishi Sunak will on Thursday announce an emergency multibillion-pound package of support for British households facing spiralling domestic energy bills this autumn, partly funded by a windfall tax on energy companies.

Those briefed on the UK chancellor’s thinking said the government support could be worth more than £10bn and will be primarily focused on the poorest households and pensioners, although the “squeezed middle” will also receive help.

Sunak agreed the final package with Boris Johnson, who is desperate to prove the government is ready to “move on” from the “partygate” scandal that has dogged his premiership.

Although many Tory MPs will be delighted that Sunak is acting to alleviate the cost of living crisis, some on the right are furious that he is planning a windfall tax raising several billion pounds to help pay for it.

North Sea oil and gas company executives said they were resigned to a windfall tax on profits, a move Sunak had previously rejected arguing it would hit investment.

They also believe a separate windfall levy on electricity generators, which is under consideration in the Treasury, would be too complicated to design in time for Sunak to announce it on Thursday.

But they believe a windfall tax on electricity profits could potentially still be on the table for the autumn, when households will feel the full force of higher energy bills as they turn their heating back on.

Executives at energy generators on Wednesday blamed their counterparts in the oil and gas sector of lobbying ministers to expand the windfall tax to include them. Several energy executives told the Financial Times that it was “only right” that other beneficiaries of high gas and power prices were also hit.

A number of cabinet ministers, including business secretary Kwasi
Kwarteng, have criticised a levy on profits on the energy sector. “Rishi has made no attempt to win over critics of the policy,” said one cabinet source.

However, Sunak may sugar the pill by ringfencing certain investments, such as funds poured into low carbon energy projects, so they are not subject to a windfall tax.

Ofgem, the energy regulator, said this week it expected the energy price cap that regulates average household bills would rise by over £800 from £1,971 in April to about £2,800 in October. Domestic energy prices will have risen by £1,500 in a year.

Sunak was heavily criticised for failing to do more to help the poor in his Spring Statement, which focused most help on those who are in work. His “economic update” on Thursday is expected to address those criticisms.

Kwarteng has proposed that a total of 8mn households in receipt of means-tested working age benefits and pension credits could receive an extra £500 through the warm home discount scheme.

That would cost some £4bn, but the Resolution Foundation think-tank argued that Sunak should make payments averaging £1,000 for 15mn households on the state pension or means-tested working age benefits.

“The chancellor will need to announce a significant package of £10bn to £15bn to make a major dent in the increases in destitution and debt that lie ahead of us this winter,” said Torsten Bell, Resolution Foundation director.

If Sunak offers help through the warm home discount, the payment will go directly to energy suppliers, alleviating fears that the companies could go to the wall this winter with customers unable to pay their bills.

Meanwhile Sunak could offer help to all households by turning his February plan to offer a one-off universal loan worth £200 — deducted from energy bills in October and repayable at £40 a year over five years — into a grant.

The chancellor has also been under pressure from Tory MPs to offer a universal tax cut — perhaps an income tax reduction or the scrapping of VAT on domestic fuel — to prove he is not addicted to putting up taxes.

Sunak will have to balance those demands against his concern that deficit-funded tax cuts could fuel inflation, which the Bank of England expects to top 10 per cent in the autumn.

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