Ministers are considering ways to cut energy bills for the poorest households amid soaring gas prices as analysis suggests a typical low-income UK family will be £1,750 worse off by next April.
On Tuesday Boris Johnson brushed away worries about a wider cost of living squeeze and shortages this winter, saying “Christmas is on”.
But government sources said there were concerns, with discussions already under way about whether to extend or raise existing discounts on energy bills available to those on the lowest incomes, with prices set to rise by an average of 12-13% – or £139 a year – from October.
Experts predict even higher rises of potentially more than £150 again in the spring, when the government’s energy price cap is reviewed, unless there is a sustained fall in the cost of gas, which surged by more than 70% in August alone.
With Labour and even some Tory MPs warning of a perfect storm of the £1,000 cut in universal credit, the end of furlough, inflation and energy bills increases, pressure is growing on the government to address the coming squeeze on household incomes.
New estimates from the Joseph Rowntree Foundation, seen by the Guardian, found a typical low-income UK family will be £1,750 worse off by April 2022 as factors combine into a spiralling cost of living crisis.
The government believes maintaining the price cap is the main tool for protecting consumers from the current crisis, with one Whitehall source saying it could have been “terrifying” if the companies were given “carte blanche” to raise bills as they were demanding.
However, others options remain under consideration to help with energy costs such as higher winter fuel payments, warm home discounts and cold weather payments. An alternative could be bringing forward changes to the warm home discount proposed for 2022, which make another 780,000 people eligible, although Whitehall sources cautioned there could be logistical difficulties with that.
Kwasi Kwarteng, the business secretary, acknowledged on Tuesday that some households could be facing a “very difficult winter”. “That’s why I’m very keen to keep the warm home discount and also there are other winter fuel payments that we’re looking at,” he said. Asked whether he had asked Rishi Sunak, the chancellor, to raise the warm home discount, he said: “We have discussions about the budget, and you will see what happens in the budget.”
But Johnson, speaking from the US before his first trip to Washington to see US president Joe Biden, insisted the energy shortage was a “short term” problem. Asked about concerns over shortages caused by a lack of CO2 production owing to high energy prices, which impacts food availability, he said: “I really don’t think that is justified … Christmas is on.”
Kwasi Kwarteng, the business secretary, said that some households could be facing a ‘very difficult winter’ Photograph: Hannah McKay/Reuters
The prime minister told BBC News: “I don’t believe people will be short of food – and wages are actually rising.”
Later challenged in an ITN interview over whether he accepted people will struggle this winter, the prime minister replied: “No, because I think this is a short-term problem caused by the energy problems.
“The spikes in gas prices, like many of the other supply issues we are seeing including food, are caused by the world economy waking up after a long time in this suspended animation caused by Covid. We will do whatever we can to address the supply issues but this is a short-term problem.”
Labour warned in an opposition day debate that working families face a squeeze on living standards “on a scale not seen for a generation” because the Conservatives had “left issues to fester”.
Modelling by the Joseph Rowntree Foundation shows that a couple with two children, earning £20,000 a year, will see gas and electricity costs rise by £3 a week, and living costs by £8 a week, on top of the £20 a week universal credit cut – leaving them more than £130 a month worse off from October.
The hole in the family’s household budget would widen further by next April once increased national insurance contributions of £2.50 a week, levied to finance the government’s plans for NHS and social care spending, are factored in.
Without government intervention, this would see the family’s annual living costs rise by about £710 in 2022-23 – roughly what it currently spends each year on clothing and footwear – with the £1,040 lost from the removal of universal credit, leaving a budget gap of £1,750.
Millions of households could face a second record jump in energy bills next spring, on top of the £139 increase due next month. An even larger energy bill rise is expected under the government’s price cap next April as gas and electricity market prices continue to rise, which could add between £178 and £294 to the typical price of a default dual-fuel energy deal.