Chancellor Rishi Sunak has warned colleagues that there is a limit to how much help the government can provide to compensate for rising energy prices, and that support should be directed at British households who need it most.
Kwasi Kwarteng, Business Secretary, will meet industry leaders Wednesday to discuss various options that could help households struggling with rising energy prices and the broader cost of living crisis.
Options being considered by the business department and the treasury include lowering the value-added tax on energy bills, increasing the discount on hot homes available to vulnerable households, as well as providing loans to energy companies so that they in turn consumers can help.
Operations managers acknowledged that there are disadvantages with all the options, but insisted that action is needed to assist households and to prevent further collapse of energy suppliers.
More than 20 suppliers have failed since the beginning of August due to the rise in wholesale gas and power prices.
Talks took place on Tuesday between Energy Minister Greg Hands and industry executives, whom Kwarteng will now meet.
Sunak did not rule out the temporary lifting of the 5 percent VAT rate on energy bills, which the Labor Party has called for.
But he privately argued that such a move, which would cost £ 2 billion a year, would be poorly targeted, as it would also benefit people who are relatively well off, according to the chancellor’s allies.
“There is just so much the government can do,” said one Sunak ally, noting that energy prices could remain high for a considerable time.
Sunak, who is waiting for government officials to draw up detailed proposals after representations by the energy industry, is wary of making an open commitment when trying to curtail government loans.
Asked about rising energy bills, Prime Minister Boris Johnson told a news conference on Tuesday that Sunak was “aware” of the problem. “We’re going to do what we can to help,” Johnson added.
Johnson said in 2016 one of the benefits of Brexit would be that the government would cut VAT on energy bills.
But on Tuesday, he said, “The argument is that it’s a bit of a blunt tool and that you end up reducing fuel bills for people who do not need the same help.”
Energy suppliers sent submissions to the government at the end of last year setting out options that could both reduce the rise in household bills and prevent the collapse of more companies.
The government is working on an effective deadline of February 7, which is when regulator Ofgem will announce the new level of the energy price limit that will take effect from April.
Analysts have warned that annual energy bills for Britain’s 15 million-plus households covered by the price limit could rise with 56 percent, or almost £ 720, from April.
UK wholesale gas prices trade at more than three and a half times the level they were at the beginning of 2021. They, in turn, pushed up power prices, given Britain’s significant dependence on gas-based electricity generation.
One option driven by the industry is for the Treasury to underwrite billions of pounds in loans to energy suppliers to help them spread the cost of higher electricity and gas bills paid by consumers over several years.
Another option is a temporary mechanism in terms of which suppliers would receive payments from the government if wholesale gas and power prices exceed a certain level.
All of these options are under discussion, according to government figures, but one said no one provided a “silver bullet”. Officials also warned against the idea of an impending solution.