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UK energy bills ‘set to cost two month’s wages’, ministers warned

·5-min read
<span>Photograph: UrbanImages/Alamy</span>
Photograph: UrbanImages/Alamy

Ministers have been warned that energy bills will cost more than two month’s wages next year unless new help is given to households, as the chancellor, Nadhim Zahawi, told firms they must invest their “extraordinary” profits or face the threat of further taxation.

The TUC ramped up calls for the government to cancel the October energy price cap rise, saying the cost of living crisis this winter was an “emergency of pandemic scale”.

It also urged trade union and business leaders to help the government find solutions, as they did when devising the furlough scheme.

The monthly take-home pay for the average worker will be £2,054 next year, based on Bank of England forecasts, while the annual cost of energy is predicted to be £4,200.

Treasury officials are working on a number of options for the next prime minister, which could include extending the windfall tax on oil and gas companies announced by Rishi Sunak earlier this year to electricity generation.

However, the frontrunner to become the next prime minister, Liz Truss, has made it clear it is not a path she intends to go down.

The Tory leadership candidates again clashed bitterly over economic policy at Thursday night’s hustings event in Cheltenham, with Sunak saying Truss’s tax cut-based approach to the energy crisis risks putting millions of Britons in “real destitution”.

New analysis by the Tony Blair Institute also laid bare how the help offered so far by the candidates was unlikely to make a dent in the rises.

Truss’s plan to reverse the recent increase in national insurance contribution would save households on the lowest incomes an average of just 76p a month, it found. But it would leave the UK’s richest households better off by £93 a month.

In an article for the Times, Sunak said he was prepared to find up to £10bn to help households this winter. But the TBI said Sunak’s plan to cut VAT on fuel would only amount to a saving of around £14 a month for the typical household.

Boris Johnson made a surprise appearance at Thursday’s energy roundtable with electricity firms to underline that the government is monitoring how they use their bumper profits.

A Treasury source said Zahawi had underlined that “everything is on the table, and all the options will be taken very seriously to make sure the next prime minister has them at their disposal and can move quickly”.

The source said there was “no getting away from the fact that they are hugely significant profits and also profits that haven’t been achieved as a result of canny business acumen”.

The chancellor told firms including Centrica, Scottish Power and EDF that the impact of families not being able to pay their bills “isn’t just the government’s problem”. He said firms would also bear the brunt of that, and it was “in their interest to reach for solutions”. A source who attended the meeting said it had been widely understood by the energy bosses present.

Kwasi Kwarteng, the business secretary, also at the talks, is sceptical of further windfall taxation and has been tipped as the future chancellor. An industry source said it was “clear the windfall tax is not a preferred option for anyone – ministers or electricity companies”.

The short-notice attendance of the PM at the scheduled meeting raised some eyebrows in Whitehall, with one source hinting it was a PR exercise. They added there was little the long-scheduled meeting could agree within the constitutional boundaries of a departing prime minister not making major fiscal decisions.

Key figures criticised the government for not acting immediately, including MoneySavingExpert’s Martin Lewis and the former prime minister Gordon Brown.

Those attending the meeting included Chris O’Shea, the chief executive of the British Gas owner, Centrica, Keith Anderson, the chief executive of Scottish Power, and Simone Rossi, the boss of EDF Energy in the UK.

Related: Britain is sliding towards an energy precipice. So where are its leaders? | Larry Elliott

The Treasury said all the ministers stressed the need to find new ways to help vulnerable customers. The crunch talks came with new predictions that Ofgem could raise the energy price cap to £5,038 next April.

Johnson, Zahawi and Kwarteng also urged the companies to use their bumper profits to invest more in North Sea oil and gas and in renewable energy sources such as biomass.

The TUC said the government should cover the costs of the £1,500 increase for households – a move estimated to cost £38.5bn – but said the government should then take the energy firms into public ownership, requiring new pricing structures.

Also on Thursday, Labour said it would eliminate a “premium” which see people with energy prepayment meters – who are often on low incomes – are charged more than direct debits.

About 4 million domestic customers use prepayment meters, while their price cap is around 2% higher than for direct debit customers, according to figures from Ofgem.

Rachel Reeves, the shadow chancellor, said: “It’s outrageous that people on prepayment meters have to pay more for their energy. Why should those with the least have to pay more to heat their homes and put the lights on? This is unjustifiable and morally wrong.”

The announcement is the first strand of what the party has promised will be a “fuller package” on the energy crisis Reeves has been working on with Keir Starmer and which will be rolled out in the coming days.