With the May elections looming, expect the drumbeat of calls for action on energy bills and fuel duty to grow louder by the day
It’s not just households counting the cost of the Iran war.
The government and Treasury bean counters are also watching with alarm as bills mount, from committing military might through to the economic fall-out. But that’s before any direct support to households already battling a cost of living crisis.
We’ve now seen the first help through £53million earmarked for those left reeling by a surge in heating oil prices. Unlike regulator Ofgem’s price cap on gas and electricity, there’s no cap on what suppliers can charge for such oil, leading to astronomical increases.
We’re told the newly announced package will be targeted at low income households, and made available through local authorities from April 1.
Details are scant on how it will work in practice, including the eligibility and whether households need to apply or if the money will be automatically paid.
But it will be a sub-set of the 1.7 million who use heating oil, with a disproportionate number in Northern Ireland, as well as Wales and eastern England.
Yet the cost is next to nothing compared with help the government will be under increasing pressure to provide from July, if the conflict drags on and energy costs remain high.
Ofgem’s price cap is shielding tens of millions of households from potential hikes. In fact, the cap will fall 7% to £1,641 from April.
The main reason it’s coming down is the Treasury shifting certain levies off bills, costing £2.3billion over three years. The big question is what happens in July when Ofgem next changes the cap, and factors in the surge in wholesale energy costs.
It’s still early days but industry experts Cornwall Insight forecasts the cap would likely jump by £186 a year to £1,827.
Were the government to shoulder the full cost of that for 33 million households covered by the cap, it would come to over £6.1billion. And that’s before any further possible cap increases in September and beyond.
You only have to look back at the Energy Price Guarantee of 2022. While it limited price hikes to 27% and capped bills at £2,500 a year, it cost roughly £25billion.
Most people agree limiting support to those who really need it is the sensible option. Just how is deserving enough, or not, is where it gets tricky.
The government has one advantage timing-wise, as the warmer weather to come means people generally use less energy. But one thing the government can’t get over is the spiralling cost of the national debt.
The last big bazooka of bill support followed a spike in wholesale energy costs after, first, the aftermath of the Covid crisis and then Russia’s invasion of Ukraine.
Those two, together earlier crisis outside the government’s control, are among the reason the UK’s debt mountain stands at an eye-watering £2.9trillion.
PM Keir Starmer is right to say that “de-escalating” the Middle East conflict is the best way to lessen the financial fall-out on UK households. But the reality is, that’s largely outside his control and down to Donald Trump, Israel and the regime in Iran.
But there is much within the government’s control. With the May elections looming, expect the drumbeat of calls for action on energy bills and fuel duty to grow louder by the day.
