CEP response to the UK Government's cost-of-living crisis support

Today the Chancellor has published a programme of measures to mitigate the current cost-of-living-crisis that in part is being driven by the unprecedented rise in energy prices. Inflation is currently 9% - the highest rate seen in 40 years, with the European energy supply situation playing a major role impacting not only household energy bills but producer costs and prices across the whole economy. The action builds on a set of measures previously announced by the Chancellor in February 2022 which centred around what was termed as a £200 ‘loan’ in the energy bills of all UK households, an extension of the Warm Homes discount scheme and a £150 council tax rebate.

While the action today may not be sufficient going forward, with OFGEM predicting that the energy price cap will increase to somewhere in the region of £2,800 per year on average in October and that the number of households in fuel poverty could double to 12million, the Chancellor has taken more action now to attempt to tackle both the energy and wider cost-of-living crisis.

Framed in terms of the need to focus on long term strategies to tackle inflation, requiring a combination of fiscal responsibility, effective monetary policy and supply side activism, the Chancellor set out a £15 billion package of nearer term measures which include:

  • A temporary 25% ‘Energy profits levy’, which is expected to raise £5bn of revenue over the next year, but combining this with 90% tax relief on future investment in an attempt to ensure required investment is not negatively impacted.
  • A direct one off cost-of-living payment of £650 to the 8 million household who already receive support through the welfare system.
  • A one-off cost-of-living payment of £300 to 8 million pensioners.
  • A one-off cost-of-living payment of £150 to those with disabilities.
  • An extension of the household support fund by 500million from October.
  • A doubling of the £200 energy bill loan to £400 with the repayments now cancelled.

Responding to the announcement, CEP Director Professor Karen Turner said:

“It is clear that the announcements made by the Chancellor represent a situation where inherent trade-offs must be carefully balanced. The announcement of an energy windfall tax will help with the redistribution of gains and losses that we have seen since the unprecedented rise in energy prices."

“Crucially, it has enabled the Chancellor to set out a range of both targeted and universal measures to tackle the energy and wider cost-of-living crisis. Here, it is clear that the cost-of living crisis is hitting vulnerable households the hardest. Therefore, it must be welcomed that the majority of measures are targeted at those most in need, such as those on low incomes, with disabilities or pensioners. However, it is also clear that the rise in energy bills is hitting households across the country. This justifies the doubling of the previous £200 reduction in energy bills to £400. Moreover, with no guarantee that energy prices bills will come down in the near- to medium-term, it is sensible that the need to repay this amount over time has been scrapped, with the effective ‘loan’ converted to a grant so that what would have been an additional cost challenge for households in the future will no longer transpire, adding to the impact of future price increases."

“The measures set out today go some way to alleviate cost-of-living concerns over the short-term. But with no guarantee that price pressures across the economy will ease, a longer-term strategy that makes households and businesses more resilient to price shocks is needed. This should include designing action on a nationwide energy efficiency scheme, and timely action on electricity market reforms, which as the Chancellor set out, with focus on ensuring the price of electricity is more reflective of the cost of producing it."