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  1. The Staggers
1 August 2022

Hard work won’t be enough to pay your energy bill

The UK government must introduce a proper windfall tax and help the poorest with the soaring cost of energy.

By Philippa Nuttall

The idea that the UK is in the middle of a cost-of-living crisis is, as Donald Trump would say, fake news where the country’s wealthiest are concerned. While millions struggle to pay bills, energy companies are recording ever-greater profits, the rich are getting richer, and the Conservative government offers little more than patronising platitudes.

We will do “everything in our power” to help people, Chancellor Nadeem Zahawi said last week, but analysts now warn that the British public could be hit with a £1,200 rise in energy prices this October, pushing up a typical energy bill to an estimated £3,244 a year. But none of Zahawi, Boris Johnson in his last days of power, or either of the candidates who will replace him as prime minister, Liz Truss and Rishi Sunak, have any intention of doing “everything” they could to help out.

On 28 July, Centrica and Shell announced that they were having quite a nice energy crisis, thank you very much. Centrica’s profits quintupled in the first six months of 2022, while Ben van Beurden, Shell’s chief executive, attributed his company’s second consecutive quarter of record profits to “a lot of hard work”.

The people struggling to pay their soaring energy bills are also putting in “a lot of hard work”, but through no fault of their own, the results are less spectacular. Research by the Resolution Foundation shows many UK voters are working more and earning less. “Real regular pay fell by 2.8 per cent in the three months to May,” it reported, most likely the biggest drop for 45 years as high inflation overtook weak pay growth. This trend is set to continue, with those earning the least experiencing the biggest squeeze and “only the very highest earners seeing above-inflation pay growth”.

Truss, the favourite to become the next leader, insists her £30bn package of tax cuts is the answer to helping people cope with soaring bills. But her measures, including the proposal to reverse the National Insurance hike implemented earlier this year, would “do little” to target those hardest hit by the cost-of-living crisis, according to another Resolution Foundation report. Only 15 per cent of the cut would go to the bottom half of earners; the top 5 per cent would reap 28 per cent of the benefits.

In a desperate attempt to claw back some support from Truss’s camp, Sunak is promising to remove VAT on energy bills. The policy would save the average household £160 a year – peanuts when faced with a £1,200 bill hike. He is also considering measures to help people insulate their houses (something he failed to do as chancellor) and may or may not reduce support aimed at making it easier for householders to replace gas boilers with energy-saving heat pumps. Meanwhile, Truss is set on cutting green levies, which according to Simon Evans of Carbon Brief, make up less than 5 per cent of energy bills and will fall to below 3 per cent of total costs in October – without suggesting what would replace them. He also notes that gas is currently four times more expensive than cheap wind and solar power. 

Ramping up the windfall tax on energy companies would seem a minimum first step to ensure that those benefiting massively from high oil and gas prices offer some relief to struggling households. No, says Truss: a further windfall tax would apparently “send the wrong message” to the world and dissuade companies from investing in the UK. The tax, as agreed in May, encourages investment in new North Sea oil and gas, much of which is exported with no benefit to British voters.

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Even before the pandemic hit, 43 per cent of the poorest families in the UK would have run out of money within a week if they lost their main income source. Without proper government action, families this winter will be cold, hungry and at risk of losing the little they have. Whether Truss or Sunak think this is their problem to solve is another matter.

[See also: The Brits refusing to pay their energy bills]

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