The Treasury is working on a menu of options to counter Britain’s cost of living crisis in readiness for an emergency mini-budget due to take place within two weeks if Liz Truss replaces Boris Johnson as prime minister.
With opinion polls and bookmakers’ odds showing Truss the clear favourite to move into 10 Downing Street next week, officials are drawing up plans that would allow the new government to move quickly over bills and longer-term reforms of the energy market.
Truss has said she wants to announce a package by the end of September but parliament will go into recess on 22 September for the party conference season. That would leave the chancellor, expected to be Kwasi Kwarteng, with little more than a fortnight to choose from a range of measures.
The Treasury accepts that the £15bn package of support announced by Rishi Sunak in May will be inadequate given the subsequent rise in the cap on average household energy bills and likelihood of a further big increase in January. It has picked up signals from the Truss camp that she intends to do more to help households facing rocketing gas and electricity bills this winter.
The new chancellor will be given a detailed briefing that will include forecasts for the cap, the likely impact on bills, the impact on different groups of households, and ways of targeting support.
The mini package of measures would include cuts in national insurance contributions, the scrapping of planned increases in corporation tax, and temporary removal of green levies from energy bills – all of which have featured prominently in Truss’ campaign – plus additional measures thought necessary in view of the 80% increase in the energy price cap to more than £3,500 expected on 1 October. Truss’ tax pledges alone have been costed at £30bn.
Sources said the civil service was examining proposals from the two Tory leadership candidates, with the government machine ready to respond “very quickly” once the new prime minister was chosen.
Options will include making the scheme that Sunak announced in May more generous and more closely focused on low-income households. Choices also include changes to universal credit, and a scheme that was proposed by Stephen Fitzpatrick, the head of Ovo, Britain’s third largest largest energy provider, which would cut households’ energy bills for limited usage. Under this plan energy consumption above a certain level would be charged at a higher price; Fitzpatrick said the scheme would channel support towards poorer consumers because high-income households typically used more energy.
The need for speed will probably mean a full budget will be pencilled in for later in the autumn, by which time the independent Office for Budget Responsibility will be ready with fresh forecasts for the economy and public finances.
A date for the emergency budget has not yet been set, but 21 September has been mooted. If Truss wins the leadership contest she would be flying back from New York City on that day after attending a meeting of the UN general assembly.
Kwarteng, at present the business secretary, has recently been in close contact with UK energy companies and has been looking at ways of tackling some of the structural problems with Britain’s wholesale energy markets. Two possible reforms have floated by the chancellor, Nadhim Zahawi.
The energy regulator, Ofgem, announced this month it was changing the methodology of its price cap to enable suppliers to recoup wholesale energy hedging costs sooner – a move that will add several hundred pounds to bills in order to stop energy providers going bust.
Zahawi said he was working with the Bank of England to “provide better liquidity in the wholesale market for energy”, which could help reduce the price cap by £400 to £500.
Kwarteng is thought to support this initiative and a separate plan that would involve the renegotiation of contracts with some renewable energy suppliers to reflect the fact that their profit margins have soared during the crisis.
Some industry watchers have suggested renegotiating existing “renewables obligations certificates” for nuclear power stations, windfarms and biomass projects in favour of contracts for difference, which would cut prices and offer long-term stable revenues for power producers. The industry body Energy UK said such a proposal could reduce energy bills for homes and businesses.
In an interview with Sky, Zahawi said he was considering the option of an agreement with companies developing power from other sources, such as renewables, for “a voluntary contract for difference … at a lower price”, but said that would “not be ready until next winter”. Zahawi said: “There are no easy options. That’s the one thing we know.”
