The Chancellor’s economy statement on support for rising energy prices
In late May 2022, the Chancellor of the Exchequer announced a new set of measures to counter soaring living costs. With consumer prices hitting a 40-year high of 9.1% inflation and the already astronomical energy price increases expected to rocket to £3,000 a year this autumn, the previous package – based on estimates that were much lower than real-life price rises – was not enough.
For individuals, families, and businesses alike, the financial squeeze is getting tighter. So, what kind of support is now available, and what does it mean for the people of Britain and our economy?
Initial economy support measures for 2022
First announced in February 2022, the Chancellor initially announced a limited package designed to reduce the negative impact of Ofgem’s energy price cap increasing in April 2022. This included:
- £150 council tax rebate for properties in England in bands A-D (with corresponding funding for Scotland, Wales, and Northern Ireland)
- £200 utility bill reduction from October 2022 as a loan under the Energy Bills Support Scheme (to be repaid by £40 a year from April 2023)
- £500 million discretionary funding for councils in England under the Household Support Fund for vulnerable and low-income people
Where measures are applied to England only, the Treasury uses the Barnett formula to adjust them for the constituents of Scotland, Wales, and Northern Ireland.
These measures initially had a value of around £9 billion, but it soon became apparent that they wouldn’t be enough to keep up with rising inflation and Ofgem’s price cap. Eventually, by the end of May 2022, the Chancellor had to update this package with a further £15 billion in support measures.
New approach to the cost of living crisis
After much speculation about windfall taxes, the new cost of living measures were revealed to be:
- Energy Bills Support Scheme – the £200 loan is becoming a £400 grant paid directly to customers’ energy suppliers, which no longer needs to be paid back
- Cost of Living Payment – people in receipt of means-tested benefits from the DWP or HMRC as of May 2022 will receive an additional £650 (paid in two lump sums of £325)
- Pension Cost of Living Payment – pensioners eligible for the Winter Fuel Payment will receive an additional £300 top-up in November/December 2022
- Disability Cost of Living Payment – people in receipt of disability-related social security payments as of May 2022 will receive an extra £150 in September 2022
- Household Support Fund – a further £500 million will be distributed among councils in England from October 2022 to March 2023
These one-off payments are tax-free, non-repayable, and do not count towards benefits caps – so they won’t affect existing benefit claims. The same applies for the previous £150 council tax rebate, which should have been issued by English councils by now.
While the energy bills grant will be paid to energy suppliers, the government will make Cost of Living Payments directly to recipients, and Household Support Fund payments will be provided to eligible people by local councils.
Where is the money coming from?
Since the cost of living crunch is so severe, you might be wondering where the £15 billion for this new package will come from. The government plans to finance these measures with a temporary levy on energy profits for oil and gas companies, increasing the amount of tax they have to pay.
The Energy Profits Levy aims to address the inappropriately high profits that energy companies are making at the expense of UK consumers, and will be phased out when energy prices fall back to historically acceptable levels. The levy will be in force from 26th May 2022 until the start of 2026.
It currently doesn’t apply to the electricity generation sector, but the Energy Profits Levy will add 25% tax to the existing 40% for oil and gas companies. It will be calculated in a similar way to the existing taxes that make up the 40% (the Ring Fence Corporation Tax and Supplementary Charge).
This measure is expected to raise around £5 billion in the first year. Companies cannot offset losses or decommissioning expenditures against their profits to reduce the levy – but as an incentive, the Investment Allowance will encourage companies to reinvest their profits for at least 80% tax relief.
Will these measures be enough?
The new measures are certainly an improvement on the woefully inadequate package announced in February, but are they good enough? After all, the energy support payments don’t come close to offsetting energy prices that more than double.
That said, since the majority of the money will go to the most vulnerable households in the UK, it’s sure to give billions of struggling people at least a little more breathing room.
Additionally, the Chancellor suggested that the social security rates from April 2023 will be based on the Consumer Price Index from September 2022, which is predicted to be higher than the average inflation rate for next year. This could mean an increase of 10% in social security payments.
If you’re concerned about managing your money more effectively in these difficult times, you might benefit from our expert financial services here at GBAC, accountants in Barnsley. Call us on 01226 298 298 or write to us at email@example.com and we’ll do our best to assist you.