The Treasury is considering raising the energy cap from its current level of £2,500 from next April, with discussions continuing over whether to announce a new policy in the autumn statement next week.
Two government sources said there was active discussion in the Treasury about announcing the level of support from April after Jeremy Hunt, chancellor, scrapped Liz Truss’ plan to keep the current cap at £2,500 for a typical two-year annual bill.
A government source said no decisions had been taken so far, but raising the cap while adding additional support for vulnerable people was “one of the options”.
The Treasury does not have to announce the level of energy support it plans to provide until spring, and may choose to wait until it becomes clear whether gas and electricity prices drop.
However, the spending in question is so critical that ministers and officials are considering whether they want to determine the level of support estimated in the fall statement, with the added benefit that it may help people prepare for what they may need to pay.
The fall statement is likely to contain many politically difficult decisions, from freezing some tax limits to increasing capital gains and dividend taxes, as well as spending cuts and possibly delaying welfare reforms. Hunt may also go ahead and increase the windfall tax on oil and gas producers to help keep paying billions of additional subsidies. He could also move to limit generators’ revenues.
He had previously said he wanted to make sure the energy price chart was moving toward a more targeted program to help those who need it most. However, it is understood that the continuation of a global level of support, perhaps in the form of a higher energy ceiling, is also on the table.
Figures from the BoE’s latest monetary policy document show its experts have assumed that government support will continue to households halfway between the current £2,500 cap and the projected energy price. This is expected to be around £3,700 in the three months of April and around £3,200 in the following quarter, which could suggest a maximum of around £2,850 to £3,100. However, this does not take into account that support can be more likely towards the most vulnerable groups.
The energy price guarantee was announced in September by Liz Truss as a two-year measure for all households and was subsequently cut back to the six months through the end of March, followed by more targeted subsidies.
The “watch window”, which the power regulator, Ofgem, uses to calculate the maximum rate, will close next week. Analysts at City Bank Investec have forecast a cap for the first quarter of next year at £4,211, although the price guarantee means that figure does not affect household bills, simply the amount the Treasury will pay energy suppliers.
The price ceiling for the three months of April, which will affect consumers, is expected to fall to £3,750 and then £3,192 for the next quarter. That would still be well above the £1,277 cap it had settled at this time last year.
Martin Young, an analyst at Investec, said: “Next week’s financial statement may provide some clarity regarding government intervention in electricity generation, but as we head into winter, it is clear that for many, vision on enduring assistance with high energy bills is essential to physical and mental health. This is pretty much an acid test to see if the government is “getting it”.