Government announces cost of living support – Industry reaction

27th May 2022

The Government has announced a £15 billion package of support for UK households as inflation hits a 40-year high and energy bills soar.

Measures, including a £400 discount on energy bills for all households and a £650 one-off payment for the poorest, will be partly funded by a windfall tax on oil and gas companies. These include one-off payments of different amounts for the most vulnerable – the elderly, those with disabilities and those on the lowest incomes.

Resolution Foundation has calculated that twice as much of the £15 billion package is going to households in the bottom half of the income distribution as the top half. The average gains from today’s announcement are £823 across the poorest fifth of households, compared to £500 for the middle fifth of households, and £296 across the richest fifth.

The Chancellor’s approach of using the benefits system to target those hit hardest by the cost-of-living crisis is the right one, says the Foundation, and helps to fill the huge gap left in his previous two support packages, of which £6 in £10 went to households in the top half of the income distribution.

Taking all the three support packages together, the Foundation calculates that the Chancellor has provided around £1,200 of support to households, fairly evenly spread across the income distribution.

However, the overall effect of policies coming into effect this year – including the three support packages and previously announced tax rises – is much more progressive, delivering an average cash gain to households in the bottom quintile of £1,195, compared to £799 for households in the middle quintile, while households in the top quintile are set for an average cash loss of £456.

The Foundation notes the Chancellor’s decision to opt for lump-sum payments rather than a second mid-year uprating of benefits reflects delivery challenges and is likely to deliver more support on average. The one-off payments cost £1 billion more than bringing forward an expected 9.5 per cent uprating to October. It is also preferable to offering support via the Warm Homes Discount, but will create some rough edges and gaps in support.

First, there is a risk that families who come into the benefit system after cut-off dates for measuring eligibility – for example if they lose their job – may miss out on some or all support.

Second, some groups will do better from this package of lump-sum payments than others as the system of flat payments do not reflect the different levels of need within the benefit system or different levels of energy usage.

Chancellor of the Exchequer Rishi Sunak said “We know that people are facing challenges with the cost of living and that is why today I’m stepping in with further support to help with rising energy bills.”

“We have a collective responsibility to help those who are paying the highest price for the high inflation we face. That is why I’m targeting this significant support to millions of the most vulnerable people in our society. I said we would stand by people and that is what this support does today.”

It is also right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this. That is why I’m introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.

There is now more certainty that households will need further support, with inflation having risen faster than forecast and Ofgem expecting a further rise in the energy price cap in October.

Today’s announcement is on top of the government’s existing £22 billion cost of living support which includes February’s energy bills intervention and action taken at this year’s Spring Statement including a £330 tax cut for millions of workers through the NICs threshold increase in July and 5p cut to fuel duty.

Commenting on the announcement, Jonathan Brearley, Chief Executive at Ofgem, said “Ofgem welcomes this further support from the Government to help energy customers with the very real impact of the current gas crisis.”

“As I said earlier this week, due to a once in a generation rise in costs, we expect the price cap to have to rise to around £2,800 for an average household and this will be very concerning for many families.”

“Our job is not to debate the merits of this package – that is a matter for political debate, but further support to customers is welcome at this difficult time.”

“Now is the time for everyone – government, regulator, industry – to come together to support our most vulnerable and poorest households on getting through this crisis.”

“Ofgem will do its part by working with energy suppliers and holding them to account to ensure they are treating customers fairly, that customers have help with payment issues and they pass on advice and support in a clear and timely way.”

StepChange Debt Charity Director of External Affairs Richard Lane said “The additional £650 of support to households claiming benefits, delivered without bureaucracy, on top of the general support being made available to all households, will really help to reduce the impact of the eye-watering cost of energy. We particularly welcome the efficiency with which it will be delivered.”

“It will remain important to ensure that the choice to try to support the widest number of households doesn’t potentially dilute the amount of support being made available to those in the greatest need. In our view, targeted support to provide as much help as possible to the households who simply can’t afford to make ends meet, even when they have pared their budget down to basics, is the best way  to reduce harm and enable households to keep the lights on and food on the table.”

Jane Tully, Director of External affairs and Partnerships at the Money Advice Trust said “Today’s very welcome package of support announced by the Chancellor goes further than many expected. For households who are struggling with the cost of living across the board, this help could not come soon enough.”

 “It is crucial now for households to be given immediate clarity on how much of today’s support they are entitled to, how they will receive or access it, and when payments will arrive.”

 “It’s also important that everyone who is struggling with their finances knows they are not alone. Free debt advice services like National Debtline are here to help, and we would urge anyone in difficulty to seek free debt advice as soon as possible.” 

Dame Clare Moriarty, Chief Executive of Citizens Advice, said “Today’s hugely welcome announcement is a life raft for the millions of people struggling to keep their heads above water due to rising costs.”

“Our advisers have been working flat out to help families who can’t pay the bills. We’ve repeatedly raised the alarm about this crisis and are glad the government has brought in concrete measures to help.”

“It’s particularly good to see support for those at the sharpest end of this crisis.”

Paul Kissack, Chief Executive of the Joseph Rowntree Foundation, said “For people living with worry and fear through this cost of living crisis, and especially for those going without essentials, today’s statement will offer very welcome relief. It is right to target help at those on low incomes, who are least able to bear the shock of soaring energy bills.”

“We are pleased by the commitment to uprate benefits in line with inflation as usual, though it is still crucial that the government invests on an ongoing basis in ensuring that everyone can get through difficult times and afford the essentials.”

“The measures announced today suggest that the Chancellor has recognised and taken action on an immediate need, and we hope to work with him to strengthen the social security system in the long term so that fewer people approach the brink when times are hard”.

Torsten Bell, Chief Executive of the Resolution Foundation, said “The Chancellor has announced a big and very welcome package of support for households facing fast rising energy bills. It almost doubles the level of energy support to over £30 billion, and fills the huge gap in previous announcements with large targeted support for those hit hardest.”

“The decision to provide one-off payments this year to poorer households, pensioners and those with a disability is a good attempt to target those with higher energy bills – although the relative lack of support for larger families stands out.”

“The Chancellor’s commitment to uprate benefits next April in line with very high inflation also offers important security for lower income households that their living standards will be protected from surging prices tomorrow as well as today.”

Caroline Abrahams, Charity Director at Age UK said “Age UK is pleased and relieved that the Government has recognised the extreme risks soaring inflation pose to the health and welfare of pensioners, particularly those on low incomes, and has announced a package of measures today with the aim of mitigating them. With prices continuing to go up for everything they buy, life is certainly not going to be easy for many older people over the next few months, but the extra support the Chancellor is bringing forward will make a difference and will protect most from the worst of the unprecedented surge in the cost of living they face.

“Targeting most of the support on offer to pensioners who receive means-tested benefits, that is Pension Credit, was undoubtedly the right thing to do, but as a result it is more important than ever that every older person who qualifies receives their due. We know that some three quarters of a million are missing out at the moment, so we urge anyone who thinks they may be eligible to put in a claim without delay.  If they act quickly, it is possible they may be eligible for some of the additional financial help that is now available, and this could be life-changing for them.

“No one knows what will happen to prices later in the year and it may well be that the Government will need to go further and do more in the autumn Budget, if inflation goes on ratcheting up. At Age UK we will be tracking the experiences of older people, especially those on low incomes, as the months go by.  We will also continue to campaign with others for more investment in energy efficiency and for the reintroduction of a social energy tariff since, in the longer term, these would help pensioners to keep on top of their energy bills and support progress towards our zero carbon targets.

“It is absolutely crucial for older people that the triple lock kicks in again next year, so it was important that the Chancellor restated his commitment to this during his speech. Age UK will hold him to his word.”

Alex Hasty, Director at Comparethemarket.com, said “Rising living costs are a massive cause for concern for millions of households across the UK, and the Government’s plans announced today will help alleviate some of the difficulties. The Government’s grant of £400 for everyone this October will help combat the soaring energy prices that households are due to see with the next price cap announcement, and the higher £650 payment will help to provide specific support for households on the lowest levels of income.”

“Today’s plan comes at a time where 66% of people already feel pessimistic about their finances compared to last year and 91% were looking to the Government to be doing more to tackle soaring energy bills, according to our latest Household Financial Confidence Tracker. As energy costs continue to increase, we encourage people to look for savings wherever possible. One way for households to offset the rising cost of living is looking at ways to save money on other bills. For example, people could see if they can switch to a cheaper provider on their motor or home insurance ahead of their renewal. Other things households can do to help save money include getting rid of unused subscriptions, signing up for cashback websites and managing credit card debt with an interest-free credit card.”

Institue of Director’s Chief Economist Kitty Ussher said “Whilst we would of course like to have seen direct help for business energy costs in today’s announcement, we completely understand that the priority should be to address the cost-of-living crisis for vulnerable households. And ultimately, what is good for household confidence is also good for the economy as a whole.”

“However, it is still the case that high energy prices are causing huge concern for business leaders. In our own research, around half (46%) of Institute of Directors members state that the cost of energy is having a negative impact on their organisation, up from only 15% a year ago. While today’s announcement is rightly to support households, the Chancellor’s recent decision to do the opposite for business and raise costs further by hiking employers’ national insurance contributions is contributing to a reduction in business confidence in the economic outlook.”