Moves to cut household energy bills for millions of families are expected to be unveiled by Rachel Reeves in her Budget next week.
While the Chancellor is eyeing a range of tax rises to plug the £20bn-£30bn black hole in the public finances – after U-turning on plans to raise income tax – she also plans to do more to help people struggling with the cost of living, it is understood.
Cutting energy bills for ordinary households is set to be a key part of the Budget, which comes in the wake of the first cold snap for the UK this week.
Campaigners have urged the government to go further to reduce the burden of energy bills, which have risen over the past five winters.
One option Reeves is understood to be looking at is cutting 5 per cent VAT on domestic energy bills. Removing green levies on electricity bills, which push up the cost higher than gas, is also on the table.
While Treasury sources refused to comment on speculation on specific measures in the Budget, they said the Chancellor had spoken about how she understands that people are struggling with the cost of living, which includes energy bills.
At PMQs last week, Sir Keir Starmer said the government was “exploring options to create a fairer system” for the way energy bills are calculated, adding: “I absolutely recognise the need to address the imbalance between electricity and gas prices”.
Energy costs for older people ‘still too high’
In June the Chancellor was forced into a partial U-turn on the cut to the winter fuel payment, which will now be available for nine million pensioners in England and Wales whose incomes are £35,000 or less.
But campaigners argue that energy costs for older people are still too high.
Caroline Abrahams, Charity Director at Age UK said: “No one should be forced to ration heating or cut back on essentials, yet persistently high energy prices mean many older people are doing exactly that.
“Any Budget announcement must include meaningful, cost-of-living support —particularly for those on low and modest incomes who are already struggling to stay warm, safe and well.
“However, the people we hear from every day are not looking for short-term fixes: they need sustainable help that reflects the ongoing reality of high prices.
“We urge the Chancellor to deliver a Budget that protects older people from hardship this winter and beyond.”
Usdaw, the union representing retail workers, urged Reeves to use her Budget to tackle “appalling levels of child poverty, with 4.5 million growing up in poverty and 70 per cent of them in working families”.
The union said it welcomed the suggestion from the Treasury last week that Reeves would not now raise overall rates of income tax and called for any additional taxation to be focused on wealth not workers, looking particularly at high-value properties.
Two-child benefit cap could also be cut
There is speculation that the Chancellor will scrap the two-child benefit cap altogether as part of measures to cut child poverty.
Joanne Thomas, Usdaw general secretary, said: “The UK is one of the seven wealthiest nations in the world, yet 4.5 million of our kids are growing up in poverty. That is absolutely shameful, particularly with 7 in 10 of them in working households.
That is a legacy of 14 years of Tory failure, which the Government is working to turn around. We now need an end to the two-child cap, which will do more than any other policy to lift children out of poverty.”
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In the House of Commons, Speaker Sir Lindsay Hoyle accused the Chancellor and her ministers of “hokey cokey budget” teasers.
He said ministers of old “would be resigning for anything that was released” in advance of a major announcement, while shadow chancellor Sir Mel Stride said pre-budget briefings had “real-life consequences”.
Chief secretary James Murray said the Budget would “protect the NHS and public services”.
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