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4 February 2022

Anoosh Chakelian

There’s an easy way to help with energy bills, but the government won’t use it

Ministers are resorting to the nonsensical council tax system because they are ideologically allergic to raising Universal Credit.

Spring Is Coming. The unholy trinity of tax rises, inflation and massive energy bills in April will mark the biggest squeeze on disposable income in Britain since records began.

The government has had no choice but to step in to help. To do so Rishi Sunak, the Chancellor, has announced near-universal support — a £150 council tax rebate in April, and a £200 loan on energy bills from October — which should reach four in five households.

Although it will help millions of lower and middle income households, there are problems with this approach.

For starters, energy bills are rising on average £693 per person, so even if we all received £350 with no strings attached tomorrow, there would still be a massive extra cost for households to absorb on top of spiralling costs everywhere else (bear in mind energy bills already rose £139 on average per customer last October, and will rise again in October this year).

Even worse, none of us are receiving a £350 grant straight away. The bulk of the money, £200, will only be lent to us via a discount on our energy bills from this October. We’ll then have to start paying this back next year (£40 a year over five years).

Most of us will also have an £150 rebate on our council tax bills in April. Most of us, but not necessarily those of us who need it most. It will apply to homes in council tax bands A-D. The council tax system is notoriously outdated. It is based on property valuations conducted in 1991, when Rishi Sunak was still in short sliders.

Its categories are widely considered outdated and inaccurate, leading to richer individuals in London paying less than those living in places where house prices have not risen as fast. Poorer local authorities raise less in council tax because of higher numbers of residents eligible for council tax reductions, so they have to set the highest rates. Their residents also make greater use of council services.

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Although he described it as a “clever mechanism to target lower and middle-income households, rather than individuals”, the consumer rights campaigner Martin Lewis warned on his Money Saving Expert website: “It is far from a perfect solution and will leave some getting help when they’ve high incomes and others with low incomes missing out.”

The Resolution Foundation, a living standards think tank, calculated that “the package doesn’t offer enough to many low-income families who find themselves at the heart of the cost of living crisis”.

There would, of course, have been a far easier, immediate way to help all those in need of financial support: Universal Credit. By the Department for Work and Pensions’ own boasts, this relatively new welfare system proved successful at stopping people who suddenly lost their income during the pandemic hurtling into poverty.

It would have been a simple lever to pull to help poorer and “squeezed middle” households through the energy crisis. You can change “one line of code” to tweak payments through Universal Credit, as a former Whitehall insider familiar with the system once told me.

Yet just as the furlough scheme (essentially a welfare programme) was set up separately from Universal Credit, the council tax rebate is an ideological decision not to ease the energy squeeze by increasing benefits — partly for fear of political difficulty reducing them again in future. After all, the decision to remove the £20 Universal Credit uplift introduced when Covid-19 hit was highly contentious within the government and the Conservative Party, as well as being brutal for claimants.

There appears to be an allergy towards using the benefits system for what it’s there for: a safety net for people hit by circumstances beyond their control.

[See also: Rishi Sunak’s help comes far too late for Britain’s fuel poor]

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