Ministers could face an extra £23billion to cover extra household energy costs of £900 this autumn, rising to £90billion next year, according to a new Institute document. for Government.
The newspaper, looking at the options for Liz Truss or Rishi Sunak in Issue 10, also warned that the government should plan for prolonged increases in energy bills by going much further with public calls to use less gas – for example by educating consumers about the cost savings of turning down thermostats – and committing to building more energy-efficient homes to help protect consumers.
No 10 and Kwasi Kwarteng, the business secretary and close ally of Truss, have resisted calls from the public to use less energy. However, the next prime minister, likely Truss, faces some very tough choices upon taking office over how much to subsidize energy bills.
Boris Johnson’s government has already spent £33billion to cover 90 per cent of the then-expected rise in energy bills, but soaring prices mean it would take another £23billion to cover the average bills that will are expected to be 900 pounds more per household than expected just three months ago, according to the IfG.
It found that extending this kind of aid in 2023/24 could cost the new government more than £90billion to be as generous to households again next year. Another option that could be considered for a new prime minister is to insulate only the most vulnerable from higher bills.
The IfG found that offsetting energy bill increases for people on means-tested benefits would cost between £800-900 per household, or around £6-8billion in total, while extending Further support for people on disability benefits and pensioners could take the total cost of supporting the most vulnerable to £10-12billion.
The IfG found that Labour’s proposed plan to keep the cap at its current level of £1,971 a year would cost the government more than £40billion for six months and would also be difficult to reverse.
The full cost of aid would require huge borrowing, but still a little less than the £300bn-plus spent during the Covid pandemic.
Olly Bartrum, senior economist at the IfG and one of the authors of the report, said: “Energy prices have risen sharply again in recent weeks and are now expected to stay higher for longer than expected. Deciding whether and how to help households and businesses meet these costs will be one of the most pressing tasks for the new government.
“It may require substantial extra spending this winter and even more next year – even limiting aid to the most vulnerable could cost billions of pounds. The government should also do more to encourage greater energy efficiency and reform markets. to reduce vulnerability to high energy prices if it is to avoid costly new support programs in a future that is likely to be defined by highly volatile energy prices.
Truss softened her stance on what she called “handouts” to cover the cost of energy, but hinted that aid could be targeted to the most vulnerable.