Labour has prepared a mechanism to deliver targeted energy bill assistance this winter for households claiming means-tested benefits should ministers decide further support is necessary.
Prime Minister Andy Burnham and Chancellor John Healey now face a series of key decisions as autumn approaches, with ministers first needing to determine whether intervention on energy costs is required before deciding what form any support package would take.
The scheme has been designed around benefit claimants because the Treasury does not currently have a way of directing support to households based solely on their income, according to insiders.
A Government source told The i Paper: “The infrastructure to deliver it [a targeted energy bill support scheme] is there.”
The approach reflects an effort to avoid repeating the almost £40billion cost of the universal support package introduced under former prime minister Liz Truss during the 2022 energy crisis triggered by Russia’s invasion of Ukraine.
Former chancellor Rachel Reeves said in the spring that support should be directed towards “those who need it most”. They later indicated the Government was “looking at ways in which we can support people based on their household income”.
However, a system capable of identifying households according to their total income has yet to be developed.
Officials reportedly regard such a system as the “holy grail”, but it is understood to be too complex to build in time for this winter.
Government prepares targeted energy bill support for households on benefits this winter
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Instead, ministers have access to a data-matching framework developed under the supervision of pensions minister Torsten Bell using records held by the Department for Work and Pensions.
The system can identify households receiving means-tested benefits, including Universal Credit and Pension Credit, providing ministers with an existing route to deliver any targeted winter support.
Several options remain under consideration, with ministers able to introduce a package focused on lower-income households or combine targeted assistance with a wider universal measure.
Should the Government opt for broader support, one option would be transferring the remaining green levies from household energy bills into general taxation.
Energy bills have been an issue for households amid the cost of living crisis | PA
Rachel Reeves moved 75 per cent of the renewables obligation levy off household bills in April, reducing annual costs by £150, and ministers could decide to remove the remaining 25 per cent.
Any targeted support package would be intended as a temporary measure.
The timing of any intervention remains uncertain because of continued volatility in wholesale energy markets following the conflict involving Iran.
Ofgem is expected to announce its next energy price cap by the end of the month, with the new rates covering the period from October to December.
Cornwall Insights currently forecasts the cap will rise to £1,699.59 a year, around two per cent higher than current levels.
Speaking to the Sunday Mirror, Mr Burnham indicated he was open to taking further action on energy bills after removing VAT from electricity bills during his first week in office, a measure estimated to save households £45.
Mr Burnham said: “It’s a short-term measure at this moment, but let’s see where we can go with that.”
The Prime Minister also acknowledged calls for the Government to address standing charges, the fixed daily fee paid by all households.
He said: “People have raised issues like the standing charges on bills, and they kind of pushed me to go further on that.”
A Government spokesman said: “We’ve cut VAT on electricity to give families breathing space. This is alongside taking £150 off energy bills for years to come and expanding the Warm Home Discount to around six million households.”
Separately, Mr Healey used a Sunday Telegraph column to pledge that the Government would remain vigilant against any “price gouging” by supermarkets and petrol stations.