Chancellor admits people earning £45,000 will struggle with sky-high energy bills

The Chancellor has suggested those earning around £45,000 annually could struggle to cope with soaring living costs as households prepare for another painful price hike over the winter.

Nadhim Zahawi said things will be “really hard” for middle-earners, as well as society’s most vulnerable, as the energy price cap is set to rise by 80% by October, pushing the average household’s yearly bill up from £1,971 to £3,549.

Industry regulator Ofgem warned the Government it must act urgently to “match the scale of the crisis we have before us” as Britain faced the bleak news on Friday.

The i newspaper later reported Tory leadership contender Liz Truss is set to give extra winter fuel payments to pensioners to ease the burden, despite in the past insisting she was focused on tax cuts rather than “handouts”.

Her rival Rishi Sunak has already said he will provide additional support targeted at the most vulnerable.

Mr Zahawi has declared he is working “flat out” to draw up options for a plan of action for the next PM so they can “hit the ground running” when they take office in September.

All options

In an interview with The Daily Telegraph, he said he is exploring ways to ensure “we help those who really need the help”.

“My concern is there are those who aren’t on benefits,” he said.

“If you are a senior nurse or a senior teacher on £45,000 a year, you’re having your energy bills go up by 80% and will probably rise even higher in the new year – it’s really hard.

“If you’re a pensioner, it’s really hard. So Universal Credit is a really effective way of targeting, but I’m looking at what else we can do to make sure we help those who really need the help. We’re looking at all the options.”

The newspaper said he refused to rule out freezing the energy cap as suggested by Labour, insisting “nothing is off the table”.

But he said: “My concern about it is that it is universal. You’re helping wealthier households, households like mine, where we can withstand the additional pressure of high energy costs, and that takes away from your ability to be resilient over the long term.

“It would be about £100 billion in about 18, 24 months. If I targeted that help, I’d be able to deliver more help to the most vulnerable.”

He also reportedly said he is weighing up potential action to help small firms including Covid-style cuts to VAT and business rates to support the hospitality and leisure sectors.

“If we don’t help those small and medium enterprises, my concern is the scarring effect, the longer-term scarring effect on the economy,” he said.

“So what we did on business rates, what we did on VAT for particular sectors like hospitality. So we’re working up all those options to look at those.

“And of course Liz Truss has talked about removing a moratorium on the green levies for a couple of years. We’re looking at that as well, which will help everyone with about £150.”

Loans

Another option on the table is granting large loans to energy suppliers to help cut bills by up to £500 a year, the newspaper said.

The Foreign Secretary, who is the frontrunner to be the next prime minister, has promised “decisive action” to deliver “immediate support” if she wins the keys to No 10.

But she has so far been vague about what form this assistance might take besides slashing green levies on energy bills and reversing the controversial national insurance hike.

She has argued it is not “right” to announce her full plan before the contest is over or she has seen all the analysis being prepared in Whitehall.

While Ms Truss has promised those “feeling the squeeze” that help is “on its way”, Labour has claimed her plans to combat the cost-of-living crisis would leave four million families “out in the cold”.

Assuming that any further direct support for families introduced by Ms Truss would be rolled out only to those on benefits, the party calculated that millions with children would miss out on the extra help.

A couple with one child both earning the average wage on a full-time basis and living outside of London would not be eligible for additional support in this scenario, Labour said.

The party also claimed that, depending on where they live, a couple both on the minimum wage and working full time with one child may not see any benefit.

It said there were almost 100 areas where families on an average wage would lose out in this situation.

Labour has argued that its own plan to freeze energy bills this winter would save someone on the minimum wage more than £40 a week.

Fact checkers

But the cost of its proposals have been called into question by fact-checkers, who claimed the party had not taken into account that people use more energy in the winter, causing it to underestimate the plan’s price tag by at least £5 billion.

Labour sources disputed charity Full Fact’s analysis and said the party had costed its plans based on consultation with Ofgem.

With bills set to spiral further, the Government has faced united calls to increase its support for households who are facing “the bleakest of winters”.

Ofgem’s chief executive Jonathan Brearley said the incoming prime minister and new Cabinet should “provide an additional and urgent response to continued surging energy prices”.

The regulator said the increase reflected the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic, and had been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.