Addressing the UK’s high energy bills woes

Just last October, British Prime Minister Boris Johnson heralds a labor shortage This will usher in a “high-wage, high-productivity” economy, he said.He now faces an alternative to hosting a Living standards hit hard this springThe troubles of rising gas and electricity bills, a scheduled increase in National Insurance contributions and a freeze on the income tax threshold, and general price hikes, could lead to the biggest cost-of-living crunch in a generation.

This poses serious political risks for a government committed to “levelling” vulnerable areas; a rise in energy prices will begin ahead of local elections in May, which will be a test of Johnson’s popularity.British households have so far been spared the worst hit by the government-enforced rise in global gas prices price cap. April cap will rise Predict 50% or more, adds around £700 a year to a typical household’s bill, or about 3% of income – roughly equivalent to the shock of a recession.

Some ministers have pushed Cancel NI increase, or Restoring pension ‘triple locks’ Suspended last year, guaranteed based on inflation, average income growth or 2.5% annual growth, whichever is highest. Chancellor Rishi Sunak has insisted that increased health and social care spending should be funded through tax increases, not borrowing.This newspaper agrees, but warns that raising National Insurance is wrong approach And said tax hikes should be delayed while the economy recovers.

But now, supporting households struggling with soaring energy prices is more important than delaying tax increases. The NI increase, while only applied to labor income rather than investment income, will still come primarily from wealthier households, which spend a larger percentage of their income on heating.

the government has a Potential Reaction Menu, from the least useful but politically attractive to the more useful but challenging.A further reduction in gas VAT from the current 5% rate is former category. It’s poorly targeted and doesn’t help struggling consumers. However, it will use post-Brexit freedoms to deviate from the euro zone’s VAT rate – calling on governments to find ways to justify the benefits of leaving the EU.

Targeted help makes more sense. The government could temporarily increase universal credit benefits for the less well-off, which would also help ease other price pressures. That could be seen as the reintroduction of previously temporarily boosted benefits to help poorer households cope with the pandemic, which would reduce its appeal to a prime minister who wants to prove emergency measures must eventually end. To make it more acceptable, the boost could be called something else, but using the existing system allows the government to quickly get money to those who need it most.

A final option is to expand the reach and generosity of the “warm house discount” scheme administered by energy companies to target some poorer households and pensioners. Currently, while other customers have higher bills, ministers can use general government funds to expand their coverage and withdraw payments from the current £140 per customer basis. Many middle-income people still experience stress, but less can or should be done about it. A high-wage, high-productivity economy is still a long way off. For now, governments must focus on escaping high-cost, high-poverty situations.

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