Rishi Sunak is expected to announce plans to give every household in Britain up to £400 off their energy bills as he makes a u-turn on levying a windfall tax on the soaring profits of oil and gas firms.
The chancellor’s significant package of measures to ease the cost-of-living crisis is set to be unveiled on Thursday – a day after Sue Gray’s controversial partygate report.
Treasury sources did not deny reports Sunak would use his announcement to scrap the requirement to repay the £200 discount on energy bills, and could increase the level of the grant to as much as £400.
The Times reported that the previously announced loan on energy bills will be replaced with a grant that will not have to be paid back.
Details of the one-off tax to fund fresh support measures were not known but Labour is likely to claim a victory of sorts after it campaigned for the measure against opposition from Boris Johnson.
Ministers have spent months criticising the idea of a windfall tax because of its potential impact on investment. Earlier this month, not a single Conservative MP voted for Labour’s call for a windfall tax on energy giants as the motion was defeated in the Commons.
Measures which have been discussed as part of a package worth around £10 billion could include a further increase to the warm homes discount to help low-income households cope with rising energy bills.
Other measures which have been discussed include increases in the winter fuel allowance, a further cut in council tax or a VAT cut.
The need for extra help was illustrated by Ofgem chief executive Jonathan Brearley’s indication that the energy price cap will increase by a further £830 to £2,800 in October.
On Wednesday a Tory source said the arguments had been “tested rigorously” within both the Treasury and wider government.
“There’s a high threshold that any package that we bring forward delivers more gain than pain, that the gain is worth the pain, that it does not jeopardise the investment,” he said.
“You don’t introduce random taxes that make the economic environment unpredictable.”
Offshore Energies UK (OEUK), which represents the offshore oil and gas industry, has warned a one-off tax on North Sea firms would see higher prices and do long-term damage to the oil and gas industry.
The chancellor will need to be careful that any extra help he puts in to the economy does not add further to inflation, which is running at a 40-year high.
As well as the possible impact on inflation, the chancellor’s ability to help beyond the £22 billion package already announced will also be restricted by the state of the nation’s finances.
A Treasury spokesman said: “The chancellor was clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.
“He will set out more details tomorrow.”