Rishi Sunak called him 9 billion pound package to mitigate the “fair, targeted and proportionate” domestic energy price hike, but others call it “unfortunately insufficient”.
For the UK prime minister – and his boss, Boris Johnson – the big question is whether he will do enough to weather an economic crisis that could erupt politically in the spring.
Sunak said his initiative would “relieve the price shock significantly”, but households across Britain will still face a dire increase to their cost of living in October. 4, when the energy bill is higher and the prime minister’s tax increase plan.
A former Cabinet minister said: “It sounds comprehensive without really costing much. Voters who agree with their new predicament will make a judgment on the government’s economic performance in a key round of local elections on May 5.
The polls are seen by Tory MPs as a referendum on Johnson’s prime ministership; If voters are angry about the cost of living crisis and are looking for someone to blame, the prime minister could be a candidate.
Sunak’s “energy bill discount”, announced in the House of Commons on Thursday, is therefore a key element of a prime minister’s survival plan that he may eventually find. alternative way.
The £693 increase in the energy price cap – in April, energy regulator Ofgem will raise it to an average of £1,971 – will come as inflation is heading towards 7% and the Sunak tax hike.
The Resolution Fund’s research arm has calculated that increasing national insurance to fund NHS and social care and freezing income tax thresholds would cost the average household £600. .
As a result, taxes and higher energy costs will together cost the typical household almost £1,300 more than in April. Several Tory MPs on Thursday again urged Sunak to reverse the upward momentum. of NI. One admitted: “It was a time of maximum political danger.
The formulation of Sunak’s bailout was highly political. The first part – a £200 rebate for all households – aims to delay some of the economic and political problems caused by a spike in gas prices with minimal cost.
Labor calls it the “buy now, pay later” program. The £5.5billion rebate is essentially a loan for homeowners, who will be paid back £40 a year through revenue on their energy bills over the next five years. .
The ‘universal’ element of this package is easy to explain to voters, but Labor highlights the fact that the money won’t be paid until October, when it could be swallowed up by a price hike. other energy price ceilings.
Energy companies are particularly concerned about October, when the ceiling is expected to change next. Analysts expect a further increase of almost £2,450 per household.
In that case, Sunak will be under pressure to give more help to households. The Prime Minister, at a press conference in Downing Street, did not rule out another intervention in the autumn, although he did warn MPs: “It is not sustainable to keep energy prices artificially low. “.
The second part of the package, which costs £3.6 billion, is a “targeted” one-off £150 rebate on council tax bills for UK properties in the AD council tax bands, covers 80% of the houses.
The Resolution Foundation said Sunak should have used the pension system to help poor households, but the prime minister made no apology for helping middle-income people “who are struggling.” ” as well as beneficiaries.
According to his allies, these can often include a couple in which one earns a nurse or teacher and the other earns the minimum wage – exactly the kind of voter turnout, who will decide the next election.
While Sunak’s plan may seem like a big intervention, the first part simply spreads the pain of higher energy bills for a number of years; The £3.6 billion element will drop in price by £150 with bills to rise by around £700 in April and possibly more in October.
Adam Scorer, executive director of fuel poverty charity National Energy Action, said the prime minister’s measures were “horriblely inappropriate and would leave those on the lowest incomes and the most inefficient homes are at profound risk.”
Dame Clare Moriarty, chief executive officer of charity Citizens Advice, said: “Today’s price cap hike means we’ll all see our energy bills skyrocket in April.” . She added: “If the government is serious about helping families facing a desperate choice between heating and eating, the welfare system should be used.”
Sunak’s allies say the prime minister is determined to cut spending and borrow more; The decision of the Bank of England on Thursday to price increase between 0.25% and 0.5% is a reminder of the threat of rising borrowing costs to the competition.
The Treasury stated that a 1 percentage point increase in inflation and interest rates could increase debt servicing costs by £25 billion.
Sunak concedes there is only a limited amount he can do to keep prices low in the face of global inflationary pressures and escalating energy prices. “For me to stand here and pretend we don’t have to adjust to pay higher would be wrong and dishonest,” he said.
Another reason the prime minister wants to rein in overspending and raise taxes right now has been articulated in his Final Budget: “At the end of this parliament, I want taxes not to be reduced, not raised,” he said. speak.
Tax breaks and other distributions to voters typically yield higher political returns closer to general election day. But for Johnson, who is anxiously watching local elections, much depends on how voters react to Sunak’s energy package in the coming weeks.