Ministers are set to announce new plans to ease the cost-of-living squeeze in the coming weeks – with households awaiting the final verdict on how much more they will have to pay for energy.
The regulator Ofgem will announce a rise in the fuel price cap on 7 February – forecast to be as high as 50 per cent – to come into effect at the start of April. The Government hopes to have a series of measures to help households ready by then.
Chancellor Rishi Sunak is under pressure to commit extra funding, and has been warned that if he does not act inflation will skyrocket and the cost of servicing public debt will rise.
On Tuesday Labour will challenge Conservative MPs to back the removal of VAT from energy bills, with a legally binding Commons vote on the issue.
Prime Minister Boris Johnson has held a string of meetings with Mr Sunak as well as Business Secretary Kwasi Kwarteng, whose brief includes energy and industrial strategy. Work and Pensions Secretary Therese Coffey is also involved in talks over how to use the benefits system to help the poorest Britons in the coming months.
The Prime Minister said: “I understand how difficult it is for people, I understand the pressures that people are facing on household finances. This is the result of global price spikes as a result of the economy coming back from Covid. But it’s making life very tough.”
A senior Downing Street source said: “There is a recognition that we need to go further on this, but we’re not setting a deadline.”
However, many officials want the package of support to be ready by the time Ofgem sets the new level of the energy price cap in four weeks’ time.
Mr Sunak is seen as one possible obstacle because of his reluctance to increase Government borrowing. He has already ruled out the idea of cancelling the new health and social care levy which takes effect in April at the same time as energy prices rise.
One Whitehall source warned: “The Chancellor needs to realise this is a macroeconomic issue. If energy bills soar then inflation rises again, and the cost of servicing debt gets more expensive.”
The House of Commons will vote on a motion tabled by the Labour Party which would lead to VAT on energy being scrapped.
Shadow Climate Change Secretary Ed Miliband said: “The Government – and all the Tory MPs who have previously backed a VAT cut on home energy bills – should follow through with their promises and vote with Labour today to scrap the tax for a year, as hard working people face a growing cost of living crisis.”
The row over living costs comes as one of the most influential Conservatives challenged Mr Johnson to deliver on his levelling up pledges.
Ben Houchen, the Mayor of Tees Valley, said voters needed “concrete evidence that they were right to back this government” by the time of the next election.