Yahoo Finance Middle earners face further squeeze as Hunt plots 'social tariffs' for energy
Middle earners face a fresh income squeeze as the Government examines plans for “social tariffs”, which would see the energy bills of vulnerable households subsidised through levies on bills paid by the better off.
The Government plans to “develop a new approach to consumer protection in energy… including options such as social tariffs,” documents published alongside the Chancellor’s Autumn Statement show.
Social tariffs would see the energy bills of low earners capped at a certain level, with the policy paid for either through general taxation or a charge on the bills of higher earners.
The proposal is being looked at as part of Jeremy Hunt’s plan to replace a blanket cap on energy bills that will average £2,500-a-year this winter.
Economists warned that social tariffs risked dragging millions more households who do not qualify for benefits into fuel poverty by excluding them from support.
It comes amid a growing backlash to Mr Hunt's economic policies from Conservative MPs, who have warned that a tax grab will stifle growth and lead to the Tories being wiped out in the next election.
Changing the way energy support is delivered could potentially add hundreds of pounds a year to the bill of an average middle class household if social tariffs are adopted and paid for through a levy added to other bill payers. The energy price cap is already set to rise to an average of £3,000 from April, Mr Hunt has said.
Martin Young, senior energy analyst at Investec, said it wasn't fair to force middle earners to shoulder the burden of higher bills.
"You don't want to push hard working people into a position where they have to make unpalatable choices," he added.
"We're in an environment where bills are unaffordable for many people, are a big stretch for a lot more people and probably only affordable to a small part of the population."
Middle-class workers are already set to bear the brunt of Mr Hunt's tax rises in the Autumn Statement.
The Chancellor’s decision to protect pensioners and welfare claimants while taxing workers and businesses is expected to push the tax burden to a record high and swell the size of the state to proportions not seen since the 1970s, according to official estimates.
British households already subsidise some of the most vulnerable through extra charge on their energy bills.
The Government estimates that the Warm Home Discount, which gives around 2.8 million pensioner and low income households a £150 discount on their electricity bill, will add about £19 to the typical dual fuel energy bill this winter.
Social tariffs would add even more money to the average bill. The Resolution Foundation has previously calculated that a social tariff that hands 7.3 million households in receipt of means-tested benefits a 30pc bill reduction would cost around £6bn.
The think tank warned of the consequences of only directing support to those on benefits.
"A social tariff for those receiving means-tested benefits would improve the targeting of energy needs over flat-rate payments, and remain highly progressive. But it would retain the problem of an acute cliff edge, based on whether you qualify for any benefits or not," it said in a recent report. "Rough justice would remain in the system and some fraud would be inevitable.”
Social tariffs are understood to one of a number of options being considered by the Government as it looks at reforming energy support from next April.
The Government will also move away from broad subsidies so that those who use very large volumes of energy have their state support capped.
"This proposal is intended to ensure taxpayers do not subsidise all of the energy usage of those households with extremely high usage," it said in the Autumn Statement.
Darren Jones, the Labour chairman of the Business, Energy and Industrial Strategy Committee, said some households will inevitably miss out on vital support.
"Given the situation we're in, I think most people recognise that the Government can't keep helping to pay all of our bills. But you don't really know who's richer based on an energy bill. You might have people who are living in drafty houses or on low incomes. The data energy companies have on consumption and vulnerability, isn't currently shared with government agencies."
A Treasury spokesman declined to comment.
