Rishi Sunak has unveiled a £15 billion emergency aid package to help millions of the most vulnerable households tackle the cost of living crisis.
The Chancellor’s latest round of government support — to be partly paid for by a £5bn windfall tax on oil and gas giants — will hand all households a £400 grant to help pay their soaring energy bills. The payment replaces an earlier plan for a one-off £200 rebate on people’s energy bills in October, which was supposed to be clawed back over five years.
In addition, Mr Sunak announced:
* Extra support for eight million of the country’s lowest income households, with those on means tested benefits set for a one off cost of living payment of £650.
* More money for pensioners who receive the winter fuel payment who will get an extra one off payment of £300
* And an extra payment for 6m people who receive non-means tested disability benefits who will receive a one off payment of £150.
The new payments will apply to the whole of the UK, including Northern Ireland.
Following a Cabinet call to sign off the Treasury’s plan this morning, Mr Sunak told MPs on Thursday: “This Government will never stop trying to help people and fix problems where we can.”
He added that the package was a “significant set of interventions to support the most vulnerable in the country”.
The latest package of support comes after energy regulator Ofgem warned earlier this week that the energy price cap is set to rise by about £800 from £1,971 a year to £2,800 in October. After a £693 rise in April, energy bills are set to rise by an eye-watering 119 per cent in a year.
Despite resisting calls to act sooner, ministers insist the Chancellor was waiting for clarity on how energy bills might rise in the autumn before deciding how to help ease the squeeze on household budgets, which have also been hit by rising food prices and an increase in mortgage payments as the Bank of England puts up interest rates.
But the timing of the announcement, a day after the damning partygate report by senior civil servant Sue Gray, raised questions on whether the aid package was being used by Boris Johnson to distract from criticism of his leadership.
Shadow Chancellor Rachel Reeves said: “Labour called for a windfall tax because it is the right thing to do. The Conservatives are doing it because they needed a new headline.”
The Chancellor’s decision to impose a “targeted” 25 per cent one off tax on the profits of oil and gas companies drew criticism from Labour, who have been calling for weeks for a windfall tax on energy firms to pay for extra support for people to deal with the cost of living crisis.
But Mr Sunak argued that he was now sympathetic to the idea because of the extraordinary profits being made by the oil and gas giants which have spiked because of the rise in gas and oil prices caused by the post pandemic rise in demand and the war in Ukraine. He said the rise in profits for companies like BP and Shell were not the result of recent changes to risk taking or efficiency but because of surging energy prices.
Cabinet ministers and some Tory MPs had opposed the windfall tax amid fears that it might deter the oil and gas giants from investing in the UK.
But to try and address those concerns, Mr Sunak said that for every £1 invested by companies in the UK they will get back 90 per cent in tax relief.
The Chancellor also said it was evaluating whether to impose a levy on electricity generating companies who he said were also making extraordinary profits.
Responding to the announcement, Ms Reeves accused Mr Sunak of being the “Klarna Chancellor - announce now – ditch later”.
She added: “For months, it has been clear that more was necessary to get people’s bills down. So what took this government so long?”
Mr Sunak, who announced a £9 billion package in February which also included a £150 council tax rebate for most households, had planned to wait until the Budget in the autumn to address the cost of living crisis.
But with inflation climbing to a four-decade high of nine per cent in April and economists warning that poorer households could be hit by 14 per cent inflation because they spend more of their income on energy and food bills, the Chancellor has brought forward his plans to try and ease the crisis now.
He told MPs: “In total, the measures I’ve announced today provide support worth £15 billion. Combined with the plans we’ve already announced that means we are supporting families with the cost of living with £37 billion, or 1.5 per cent of GDP.
“That’s higher or similar than countries like France, Germany, Japan and Italy.
“And I’m proud to say that around three-quarters of that total support will go to vulnerable households.”
As well as announcing emergency support today, the Chancellor also set out a three point plan to combat the longer term inflation crisis – a strong independent monetary policy, responsible fiscal policy to ensure the Treasury doesn’t fuel inflation further by stoking demand and an “activist approach to spply side reform”.
He said: “We will turn a moment of economic difficulty into a springboard for economic renewal and growth.”
A decision on broader tax cuts, such as bringing forward the planned 1p reduction in income tax due in 2024 or reducing VAT, is set to be delayed until the autumn.