The Chancellor has vowed to draw up “targeted” support for poorer households facing skyrocketing heating bills due to the war in the Middle East.
Rachel Reeves said the Treasury is considering “different scenarios” to help “those who really need it” following the global impact of the US-Israel war in Iran.
It comes as fruit and vegetable producers have warned of empty supermarket shelves as rising energy and transportation costs may force them to stop production.
Energy prices have soared since Iran effectively closed the Strait of Hormuz, a key waterway for oil and gas tankers where the traffic of ships has declined from 138 daily to around five.
Here’s why the Iran war is affecting your bills – and how new support packages could work.
UK households see heating prices surge
The UK’s 1.5 million households that rely on heating oil are already facing soaring energy costs, as the price per litre has doubled since the conflict began.
Heating oil is not covered by the Ofgem price cap, which sets a maximum amount that households using gas and electricity can be charged by energy suppliers.
The current price cap is fixed until June, but if the conflict continues and Iran maintains its tight hold on the Strait of Hormuz, homes using gas and electricity could also face steep increases.
Analysts from Cornwall Insight have predicted that household energy bills could rise by 10 per cent from July due to dramatic increases in wholesale gas prices.
This would raise Ofgem’s price cap from July to September by £160 – or 10 per cent – to £1,081 a year for a typical duel fuel household, meaning ones that uses the same supplier for both gas and electricity.
People across south-east England have also accused heating oil suppliers of “profiteering” from soaring energy costs due to the war.
Customers said suppliers cancelled scheduled deliveries that were paid for before the conflict began and informed them they had to either request a refund or repurchase the oil at a hugely increased price.
Who could benefit from Reeves’s plan to cut costs?
The Chancellor suggested that lower income households could be prioritised for support, and that the Treasury is considering “different options” depending on the length of the conflict and its impact on wholesale energy prices.
A package of support for households relying on heating oil is expected from the Treasury next week.
“I’ve found the money and we’ve worked through with MPs and others a response for people who are not protected by the energy price cap,” Reeves told The Times in an interview.
The Treasury has until June, when the current price cap ends, to develop a plan for households using gas and electricity.
“We’ve got some time, and we are working through in the Iran response board [a group of Treasury ministers and officials] different approaches we could take, including looking at more targeted options,” the Chancellor said.
Rachel Reeves has said the government would be working ‘flat out to try and de-escalate the conflict’ (Photo: Dan Kitwood/PA)She added that a universal energy bailout for households, as was done following Russia’s invasion of Ukraine at the cost of around £35bn over six months, was unaffordable due to Britain’s high debt-levels.
“It is important even when there is an economic shock – or perhaps particularly when there’s an economic shock – that you continue to be disciplined about your use of public money,” she said.
Reeves told the Treasury Select Committee on Wednesday that it is “much too early” to determine what the situation will be when the next price cap is decided at the end of May for July, adding that “we will work flat out to try and de-escalate this conflict and, crucially from an economic perspective, to get vessels moving again in the Strait of Hormuz.”
Petrol and grocery prices also set to rise
Rising energy costs are also set to impact petrol and grocery prices, as fruit and vegetable producers warn they may have to end the growing season early.
Lea Valley Growers Association (LVGA) secretary Lee Stiles said this could result in empty shelves in the supermarkets if the industry does not receive more support.
“With rising costs, many growers are thinking they might as well send the staff home, stop for the season and not produce anything,” he said.
Stiles added: “The supermarkets agreed a fixed price with growers last year. They can intervene now if they wish and agree to pay more for the produce because of the increased cost of production.
But it looks as though they’re prepared to have empty shelves again and reduced availability.”
LVGA covers 70 glasshouse growers and are the biggest producer of cucumbers, sweet peppers, aubergines and tomatoes in the UK.
Rachael Williams from the West Sussex Growers Association (WSGA) said that it is not just direct energy costs, but also “the rise in transportation costs, input costs, supply chain disruption” that is affecting growers.
She added: “On the transport cost, red diesel has gone up by more than 50 per cent in just ten days, that’s huge for open field growers using tractors too.”
The price of red diesel increased from 79.44 pence per litre to 131.26 between March 1 and 12, according to heating oil firm BoilerJuice.
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