John Healey is expected to reject calls for wider help with energy bills from millions of Britain’s squeezed-middle households as he uses today’s Budget to increase support for people receiving benefits.
Ahead of his first major fiscal statement, which has been billed as offering families “breathing space”, the Chancellor confirmed this morning that gas standing charges will be abolished for about 23 million homes.
Standing charges are fixed daily fees added to energy bills regardless of how much gas a household uses. For a typical home, they amount to roughly £108 a year.
The Treasury said Mr Healey will instruct energy regulator Ofgem to remove the charges “in 2027 or as soon as possible after”. The change could save 60 per cent of households around £45 a year.
However, MoneySavingExpert founder Martin Lewis, who met the Chancellor at No 11 Downing Street this morning, warned that removing the “moral hazard” charge would not benefit everyone. He said four in 10 households could end up paying more because suppliers would increase the unit rate.
Writing on social media after his breakfast meeting with Mr Healey, Mr Lewis suggested that the main focus of the package would be on the poorest households. This could include an increase in the Warm Home Discount, a £150 payment available to some people receiving benefits.
Other experts have also warned that the proposed changes could leave pensioners and larger families worse off because they typically use more heating.
Tory energy spokesman Andrew Bowie said: “Next week in large parts of the UK, the temperature is going to get close to freezing. Because of these changes, if you live there and heat your home with gas and want to turn on the central heating… Labour just made your life much more difficult and far more expensive.”
At the same time, Mr Healey has earmarked £5.5 billion to increase benefits for 10 million people by 3.5 per cent, matching inflation. Wider welfare reforms have been postponed until later in the Parliament.
MoneySavingExpert founder Martin Lewis, who met the Chancellor at No 11 Downing Street this morning, warned that although the “moral hazard” charge would be removed, four in 10 households could pay more as unit rates rise.
Richard Neudegg, director of regulation at Uswitch.com, said: “Based on current rates, a household using 7,000 kWh of gas a year could be about £40 better off under these changes, while a home using 14,000 kWh could be £25 worse off.
“A household using the typical 11,500 kWh should not see any change in what it pays.
“The Treasury says these changes will happen ‘in 2027 or as soon as possible after’. Until then, consumers face a difficult winter, with further energy price cap increases on the horizon. We will wait to see how the full energy package in the Budget looks later today.”
Other announcements expected as the Chancellor delivers what has been described as a “steady as she goes” Budget include:
Household energy bills increased in October after Ofgem raised its price cap by 4 per cent. Forecasters have warned that bills could climb by almost £300 more from January.
The latest forecast from Cornwall Insight predicts that the energy price cap will rise by a further 16 per cent to £1,999 a year on January 1. That would be £276 more than the October-to-December level and the sharpest increase since January 2023.
To support households, the Government has temporarily removed the 5 per cent VAT charge on electricity bills until March 31 next year. The measure is expected to cut annual costs by about £45.
Households will continue to pay 5 per cent VAT on gas.
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Mr Burnham told the Commons last week that he had asked Mr Healey and Energy Secretary Miatta Fahnbulleh to consider abolishing energy standing charges.
The fee does not pay for the energy itself, but covers the cost of delivering gas and electricity to homes and businesses – including the cost of essential maintenance and infrastructure upgrades.
Concerns have been raised that some low-income consumers who use large amounts of energy could be left worse off if the costs simply move to the unit rate part of the gas bill.
The Treasury said ministers will ‘set out in due course targeted mitigation for a small number of households’, and that those ‘not seeing an automatic saving will still have better control over their bills without the worry of affording the standing charge’.
Mr Lewis this morning wrote: ‘The biggest issue in energy right now is that we’re expecting a 27 per cent rise in the price cap in January.
‘I asked the Chancellor whether he will be intervening on that. He told me I’d have to wait for the Budget, but reading between the lines, yes, there will be an announcement today.
‘Whether it’s an increase in the warm home discount, or whether it’s council tax (band-related), or whether it’s done via a payout for people in say council tax bands A-D as a proxy for household income as Rishi Sunak did who knows.’
The Chancellor will also announce plans in his Budget to axe green levies from energy bills and put them onto general taxation, The Times reported.
Mr Healey will have limited scope for big giveaways because of stretched public finances, made worse by international market turmoil caused by the Iran war.
He is sticking with the fiscal rules set by predecessor Rachel Reeves, requiring day-to-day spending to be financed by taxes rather than borrowing by 2029-30 and that public debt as a share of the economy should fall in the same year.
The judgments of the Office for Budget Responsibility watchdog over the path of the economy will be critical today.
Analysts believe Mr Healey has been handed some wriggle room from higher inflation, which is likely to push up earnings faster than anticipated.
That would mean millions of people being dragged deeper into the tax system, as the ‘stealth’ raid from frozen income tax rates is due to remain in place until 2031.
The revenues could offset the fallout from higher costs as a result of the Iran war, according to the Institute for Fiscal Studies – although it will put huge strain on spending plans.
Mr Healey might also opt to lower his £24billion headroom against fiscal rules instead of cutting spending or raising taxes.
READ MORE:
Government scraps standing charges on gas bills – what will it mean for your energy bills?
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