Help Is on the Way: Every household to get £400 energy bill discounts

June 3, 2022

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3 min read

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What's going on here?

As part of new targeted government measures to help with the soaring cost of living, Chancellor Rishi Sunak has announced that millions of UK households will receive a £400 energy bill discount this autumn.

What does this mean?

Last week, Sunak unveiled a £15bn package of measures to address the rising cost of living and the impact of soaring inflation, which reached a forty-year-high in April. Under the emergency cost-of-living package, every UK household will get an energy bill discount of £400 that will be partially funded by a £5bn windfall tax on oil and gas companies.

A windfall tax is a single governmental tax imposed on a company. The idea behind it is to target firms that have benefited unexpectedly – in other words, a windfall. When compared to last year, energy giants are bringing in considerably more money for their oil and gas, partly due to increased demand and supply concerns stemming from Russia’s invasion of Ukraine.

In addition to this universal payment, the package also includes targeted support for the elderly, the poorest and the disabled. These further measures will be two-thirds financed by borrowing of approximately £10bn, but Sunak maintained that he has a “responsible fiscal policy” and that the new measures will have a “minimal impact” on inflation.

Sunak also acknowledged that soaring inflation was giving rise to “acute distress” for those in the UK. Speaking to Members of Parliament, he said: “I know they are worried, I know people are struggling,” and the Government “will not sit idly by while there is a risk that some in our country might be set so far back they might never recover”.

What's the big picture effect?

Overall, Sunak’s £15bn package is an encouraging step in the right direction. For months, both economists and poverty campaigners warned that low-income households would be stranded in progressively dire financial situations as a consequence of record level inflation. Despite these warnings, the UK Government decided to overlook their predicament. Instead, it implemented universal credit cuts and formulated financial support measures that largely went to households in a more favourable position. Furthermore, the Labour party’s calls for a windfall tax on energy giants to finance further financial relief went ignored.

The Chancellor has finally bowed to pressure and this new package will replace the first plan of a £200 loan which was to be repaid over five years from 2023. It is noted that the Government’s change in course comes after civil servant Sue Gray’s scathing report into lockdown parties in Downing Street and follows the intense pressure on the UK Government to take more action in assisting households in the cost of living crisis. The Labour party has accused Chancellor Sunak of being “dragged kicking and screaming” into a U-turn on the policy they have spent months pushing for.

According to Paul Johnson, Director of the Institute for Fiscal Studies think tank, this new support package is “genuinely big…Put these benefit increases alongside the tax rises just implemented, and Mr Sunak is engaging in some serious redistribution from rich to poor – albeit against a backdrop of rising inequality”. However, commentators note that these new measures offer no plan for growth and fail to address several concerns including child poverty. By withholding this new level of support for a long time, Sunak has left many families in financial hardship and overall uncertainty for longer than was necessary.

Another issue raised by commentators is that a one-off payment to support low-income families does not seem adequate to deal with the impact of the rise in the cost of living this year. According to The Guardian, many households were already in very tough financial circumstances, with increasing numbers of families relying on food banks to feed their children. With increased cuts to tax credits and benefits, many families may continue to be negatively impacted.

Overall, the new targeted government measures to tackle the rising cost of living are a welcome step in the right direction. However, whilst the £15bn package of emergency support measures is much better and preferable when compared to the Chancellor’s initial plan in earlier weeks, it is clear that the Government still has a lot to do in addressing the impact of the soaring cost of living and rise in levels of child poverty in the UK.

Report written by Goodness Asaolu

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