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Rishi Sunak announces £9 billion package to offset 54% increase in UK energy bills

Chancellor Rishi Sunak has announced a £9 billion package to help struggling UK households cope with a surge in domestic energy bills, as the price cap rises to almost £2,000 England a year.

Domestic energy bills in the UK will rise to the highest level in more than a decade after regulator Ofgem said the upper limit on electricity and gas prices paid by around 22 million households would rise by 54 %, or £693, to an average of £1,971/year. year from April.

The prime minister’s announcement came just 30 minutes before the Bank of England raised interest rates from 0.25% to 0.5%, warning that inflation could hit 7.25% in April.

The government is grappling with how to respond to a cost of living crisis that will only get worse as energy bills soar along with an impending tax hike. Sunak said his support package will “escape a significant price shock” when the new cap goes into effect in April.

The support package contains two main elements. The first is a £3.6bn council tax break, paid in April, worth £150 per UK property in the A to D bands.

Sunak said 80% of households will benefit and the amount is non-refundable. Additional cash will be made available to UK development governments to launch similar schemes.

The latter will cost £5.5 billion and cut electricity bills by £200 in the UK, but it won’t be until October when analysts forecast a second rise to the energy cap. Sunak aims to recoup that money by adding £40 to its annual electricity bill for five years from 2023.

The UK energy price cap is currently adjusted twice a year, in April and October, and based on wholesale market energy futures prices, analysts expect October levels to exceed 2,400 pounds a year.

£ per year bar chart, based on average usage showing the Energy Price Cap has been pushed higher due to increased wholesale prices

Energy consulting firm Cornwall Insight predicts that even in April 2023 the cap will need to be at £1,846 per household per year based on average usage.

Martin Young, energy analyst at Investec, said the £200 global payout is likely to be absorbed by the expected increase in October. He said: “Indeed, a £200 payback. Britain’s ability to reimburse electricity bills is said to be a political ploy.

The Prime Minister said he had deliberately chosen to help “those with middle incomes who are struggling” as well as those who are benefiting.

Rachel Reeves, Labor chancellor, said the help would be wiped out by the tax hikes Sunak introduced in April. “The Conservative Party is the price to pay of the subsistence crisis,” she said.

National insurance increased by £12 billion – something many Tory MPs wanted to cut out – and freezing income tax thresholds would cost a typical household £600 a year from April, according to the report. Resolution Foundation.

Around 4.5 million vulnerable households using a prepaid meter for their electricity and gas will see their bills increase by an average of £708 to £2,017 a year. Prepaid meter customers pay more than households paying bills by direct debit. Ofgem said the higher cap also reflects the costs for energy companies to service them.

The new level, which went into effect on April 1 and lasts for six months, is the highest since the price cap was introduced in 2019. It is also the highest for an average bill since the price cap was introduced in 2019. 2009, according to official data.

The sharp rise was fueled by wholesale gas prices, which broke a series of records last year and continue to trade at historic highs. Energy companies and analysts have warned that as a result, bills will remain high next year and potentially beyond unless commodity prices fall rapidly.

Charities warn government intervention will not be enough to prevent millions more households from falling into poverty. Even before the energy price crisis, an estimated 4 million households could not purchasable their electricity and gas bills.

Caroline Abrahams, charity director at Age UK, said she was “bitterly disappointed” by what she had heard from the prime minister as his plan to mitigate the blow to the bill “simply” didn’t go far enough.”

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