Energy price cap rise increases pressure for Emergency Budget

Last week’s hefty 80% increase on the energy price cap has ramped up the pressure on the next Prime Minister to act quickly with a package of measures to help struggling families and businesses out.

An Emergency Budget this September now looks almost certain, but questions remain over how any financial support would be structured.

Liz Truss is the overwhelming favourite to be named the new Prime Minister on 5 September, so inevitably there is a lot of focus on the messages coming from the Foreign Secretary’s campaign.

Consequences across the economy

From early in the leadership contest, Ms Truss made it clear she would rather cut taxes to help families than use direct cash ‘hand-outs’. However, as energy prices continue to soar and send inflation higher, the candidate has been forced to re-evaluate her position.

This became particularly urgent after Ofgem’s announcement on 26 August, which revealed that the energy price cap will increase to £3,549 per year for dual fuel for an average household from 1 October 2022.

The response from business groups was immediate, with the Confederation of British Industry (CBI) warning that the ‘steep rise in the price cap will hurt households across the country’.

The CBI added: ‘Left unaddressed, October will see millions plunge into fuel poverty, with the consequences felt right across the wider economy.’

Full support and advice

In response to the price cap rise, Ms Truss used a newspaper column to say she would use an Emergency Budget next month to ‘ensure support is on its way to get through these tough times’.

The Foreign Secretary said she was looking at assistance ‘across the board’ and promised ‘decisive action’ to deliver ‘immediate support’.

However, the Truss campaign has since said she will not finalise her plans for a cost-of-living package for households until she gets the ‘full support and advice’ of government, which is only available to the Prime Minister.

‘Running out of time’

However, the UK’s business groups are warning that the government is running out of time to support firms through the coming winter.

The British Chambers of Commerce (BCC) has written to the Prime Minister, Chancellor of the Exchequer and both Conservative Party leadership candidates proposing a comprehensive five-point plan to provide vital support to UK businesses.

The BCC’s five-point plan to support businesses includes the following measures:

• Ofgem to be given more power to strengthen regulation of the energy market for businesses.
• Temporary cut in VAT to 5% to reduce energy costs for businesses.
• Covid-style support by introducing Government Emergency Energy Grants for SMEs.
• Temporarily reverse national insurance contributions (NICs) and put money back into the pockets of businesses and workers.
• Government to immediately review and reform the Shortage Occupation List (SOL) to help bring down wage pressures and fill staffing vacancies.

Out in the cold

Meanwhile, the Federation of Small Businesses (FSB) has warned that their members are being ‘left out in the cold when it comes to energy bills, with the vast majority excluded from the household energy price cap’.

The FSB wants to see an extension of the price cap to the smallest business, as well as direct help with energy bills.

It also says that ‘Help to Green’ vouchers should be introduced. These would be modelled on the Help to Grow Digital scheme. This would see the government introduce a scheme to support businesses to decarbonise, with £5,000 vouchers that can be spent on environmental goods and services.

The FSB says this would help businesses reduce their need to buy energy from the grid, lower bills, and improve our energy security.

Economic and fiscal outlook

There have been concerns that an Emergency Budget will go ahead without an economic and fiscal outlook from the Office for Budget Responsibility (OBR).

However, the OBR has now said it is currently preparing the outlook at an ‘exceptionally accelerated timetable’ in the event of an Emergency Budget in September.

Keeping your clients informed

Mercia’s expert team will be watching and analysing all Budget statements made by the government this autumn. We will be providing a range of products so you can keep your clients up to date on the changes that affect them.