Chancellor 'asks Treasury for plans to cut £400 off energy bills'

Chancellor Nadhim Zahawi ‘asks Treasury officials to draw up plans to cut £400 off gas and electricity bills in January by loaning cash to energy firms’ in bid to bring down price cap

• The Treasury could give money to suppliers to cut energy bills by £400 a month
• A multi-billion pound package is being developed, but won’t in use until January
• There are questions about whether Liz Truss or Rishi Sunak would make use of it
• Both leadership candidates have announced their own plans to ease finances

The Treasury is drafting plans to pay energy suppliers to cut bills by an extra £400 this winter in an effort to help people with extraordinary price rises.

The proposals would see the January price cap, which is expected to rise to £4,200, reduced by £400. 

This would be done by getting preventing an allowance that suppliers can charge customers, which would instead be paid for by the Government in the form of loans.

Officials in the Treasury have been working on the scheme, which could see the Government take on liabilities of £9billion, at the behest of the Chancellor, Nadhim Zahawi.

However, the next Prime Minister might not go for the measures, with both Rishi Sunak and Liz Truss previously announcing different plans to deal with the cost-of-living crisis and the squeeze on household finances.

The Times reports that while the proposals will be ready for the winner of the Tory leadership race to choose on their first day in the job on September, they cannot be put in place until January. 

Chancellor Nadhim Zahawi, pictured here during a visit to Belfast last week, has told officials at the Treasury to draw up plans to cut energy bills in the winter

Millions of people are struggling with rising energy bills, with the price cap expected to reach £4,200 in January

In the meantime, households will see a £400 support package, which had been announced in May by then-Chancellor Rishi Sunak, come into force. 

This will see bill payers get more than £60 off their energy bill every month – with £66 taken off in October and November, and £67 between December and March.

This support was announced when the price cap was predicted to hit £2,800 in October, but since then forecasts have got even bleaker, with predictions bills could hit £3,420 a year from October ahead of another rise in January.

Under the plans being worked on by the Treasury there would be a change to the structure of the price cap put in place by Ofgem to make bills cheaper. 

Earlier this year the energy regulator introduced an allowance – meaning energy suppliers could charge even more as part of the cap – to cover the costs of purchasing energy from producers in the winter, when prices are at their highest. 

The aim of this was to prevent more suppliers going bust, but there are now fears that the extra money added onto bills could just push even more people into even more dire financial straits.

To get around this, the Government is expected to pick up the slack, with suppliers able to apply to have either their short-term debt purchased by the Bank of England have the Treasury guarantee loans to them.

However, there will be some who say the plans do not go far enough, calls for stronger intervention in the market continues to grow.

Tomorrow Labour will call for the energy price cap to be frozen at its current level of £1,971 as UK households struggle to pay their bills.

The move to block an expected increase to £3,300 in October is expected to put further pressure on the two Tory leadership contenders.

A think-tank has warned households on low incomes will have to reduce their spending power by three times as much as high income households in order to afford their energy bills this winter.

Labour leader Sir Keir Starmer will call for the price cap freeze in a speech in which he will pitch how his party will pay for the measure, according to The Observer.

Labour leader Sir Keir Starmer (pictured) is expected to call for the price cap to be frozen at £1,971 in October, when it is expected to go up to £3,300 without intervention

Specifics of the measure were not available, though Sir Keir wrote elsewhere that the party aimed to end energy ‘injustice’.

‘We would end the injustice that sees people on prepayment meters paying over the odds for their energy,’ he wrote in The Sunday Mirror.

‘And we will set out how we would help people directly this winter in the coming days.’

It comes after Sir Keir on Friday said it is ‘nonsense’ to claim his party has not been leading on the cost-of-living crisis.

Last week the party announced it wanted to put a stop to ‘outrageous’ premiums that energy prepayment meter customers face.

Shadow chancellor Rachel Reeves said Labour would end the ‘unjustifiable’ practice that can result in people with energy prepayment meters being charged more than those who pay by direct debit.

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