Over the course of the last few months, there has been a dramatic rise in the cost of energy, largely stemming from Russia’s senseless, unprovoked invasion of Ukraine. This has driven gas prices to record highs and, as result, put unavoidable pressure on families’ budgets and made many worry that they will struggle to afford their energy bills this winter.
As the scale of the rise in the cost of living became clear, Rishi Sunak, who was Chancellor at the time, acted swiftly by announcing £1200 of support for the most vulnerable households. This included grants of £650 for those on means-tested benefits, £300 for pensioners in receipt of Winter Fuel Payments and £150 for recipients of disability benefits. These grants will be on top of the £400 payment that will go to all households later this year.
Rishi, who I am supporting to be the next leader of the Conservative Party, has made clear that the best way to address the pressures on household budgets is through target measures like those that have already been announced. That is why he has already committed to scrapping VAT on energy bills for every family this winter and to announce further support as needed.
An alternative approach has been put forward by Liz Truss, focusing on tax cuts funded through higher borrowing and this has become a key issue for debate in the current leadership contest. Many argue that cutting taxes in the current inflationary context risks driving inflation higher and repeating the mistakes that Ted Heath made in the early seventies. Inflation puts further pressure on household budgets and there are some forecasts that it could go as high as 18% early next year and this must be addressed. However, advocates of her approach point out that inflation leads to higher VAT receipts which create some scope for other tax cuts.
Meanwhile, Labour has put forward an unworkable proposal to try to regulate the price of energy. The problem is that gas prices are driven by global markets and the Labour plan cannot force businesses to provide energy at a loss so they would probably end up with energy shortages.
One of the lessons from this current situation is that we must ensure that we increase our energy independence in a sustainable way. In the short term, this means upgrading domestic boilers and improving the energy efficiency of homes. The Government is already taking steps towards this by removing the 5% VAT on energy-saving materials and launching the Boiler Upgrade Scheme to offer grants on low carbon heating technologies.
It is also important that we continue developing more renewable sources of energy such as wind power and nuclear energy. We must progressively move away from using fossil fuels if we are to guarantee that we hit the target of net zero by 2050 and that energy bills return to much more affordable levels over the next few months and years.
