John Healey is under growing pressure to offer fresh energy support for households in next month’s budget as millions face a 4% rise in charges from Thursday to an average of £1,723 a year for a typical home.
In his speech at Labour’s conference in Liverpool this week, the chancellor warned that the government had limited resources to cushion the worldwide economic shocks hitting Britain, while arguing his budget would have fiscal discipline at its core.
The quarterly energy price cap, set by the regulator for Great Britain, Ofgem, will rise to its highest level in three years despite Andy Burnham’s decision to cut VAT from electricity bills to save the average household £45 a year from 1 October.
Households also face rising road fuel costs after diesel prices reached a record high of almost £2 a litre this week, which is expected to accelerate the rising cost of goods across the economy.
Treasury sources insist the 28 October budget will be tightly focused amid the challenging global backdrop, as bond market jitters add to the pressure on the public finances.
Insiders said tax devolution was likely to be centre stage to meet Andy Burnham’s promise to shake up Whitehall, while several big decisions could be pushed back to a spending review next year.
Some MPs are privately concerned that Healey and his team have failed to grasp the severity of the energy crunch ahead. “Without it [fresh energy support], the vibes will end,” said one Labour MP. “The problem is the Treasury are just not understanding where the country are.”
Healey warned in his speech that the money New Labour had in the 1990s was “simply not there now”, although he also vowed to offer “a bit of breathing space” for households and businesses.
As energy bills rise for millions of households from Thursday, a group of leading campaigners, charities, trade unions and thinktanks warned that failure to take action would risk deepening the cost of living crisis.
Writing in an open letter to the chancellor and the energy secretary, Miatta Fahnbulleh, the group – including the New Economics Foundation, the Joseph Rowntree Foundation and Generation Rent – called for a package of universal energy support as well as targeted measures to help those most in need.
Coordinated by the Cost of Living Action campaign group, other signatories included Neal Lawson of Compass and Mathew Lawrence of Common Wealth – both of whose ideas have fed into Burnham’s policymaking.
With the war in the Middle East pushing up global oil and gas prices, the leading energy forecaster Cornwall Insight predicts the cap will increase by a further 16% from January to £1,999 for the average annual dual-fuel bill.
Paul Nowak, the general secretary of the TUC, said this “energy bill emergency” meant the government should “go further and faster” at the budget to protect households.
On Wednesday, Burnham said Labour “will do our best” but warned that the government faced tough financial constraints, telling the BBC there was not “huge room for manoeuvre” to take further action.
In his first weeks in office, the prime minister announced the six-month VAT holiday on electricity bills and a £2 cap on bus fares in England.
The Treasury is under pressure to extend the six-month VAT holiday, and shift the levies used to support new clean energy projects and grid upgrades from energy bills into general taxation.
The changes are understood to already be under consideration by Fahnbulleh, who is reportedly hoping to save customers an average of £120 a year on their energy bills – but this could involve putting up taxes by as much as £3bn.
However, the campaigners warned that further cost of living support was needed. “It is clear that this does not go far enough and that what is coming down the track this winter requires a much more substantial response,” they wrote.
Highlighting the risks from soaring energy bills, new polling carried out by More in Common on behalf of the Joseph Rowntree Foundation shows 28% of households are extremely worried about the prospect of the Iran war pushing up bills this winter, while 43% are quite concerned.
It found 66% of British adults think the government needs to do more to tackle the cost of energy.
Calling for bolder action, NEF urged the government to introduce a new “national energy guarantee” giving all households a basic amount of energy at a fixed low cost, with higher levels of consumption charged at market prices.
Responding to the letter, Fahnbulleh said:“I know energy price rises weigh heavily on homes across the UK this winter.
“From today, our VAT cut will give households some much-needed breathing space, making the energy price cap £45 a year less than it would have been. This follows the £150 of costs we removed from bills earlier this year.
“Alongside this, we continue to look at what more we can do to protect families from unaffordable bills, as we drive down bills for good through clean power.”
Burnham said: “For many families, the energy bill is the one they dread the most. I don’t accept that it has to be this way, and I am determined to bring down costs for good.”
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