The richest fifth of households may gain the most from Liz Truss energy plans this winter according to a report ouit this morning
The Resolution Foundation analysis of the richest fifth of households may gain an average of around £1,300 this winter compared to £1,100 for the lowest-income fifth and that any plans to scrap the NICs rise will make this worse
The think tank found that Truss was right to announce support, but the lack of costing and detail mean there big questions remain.
The Energy Price Guarantee Plan (EPG) announced that week will mean that annual energy prices for the typical household are capped at £2,500 for two years from October 2022. This means that energy bills will likely be £1,074 lower over the next six months than current forecasts of the Ofgem energy price cap.
Together with the previously announced £400 energy bill rebate, the EPG covers 76 per cent of the increase in bills compared to last winter (October 2021-March 2022), and means that prices should remain around their current levels this winter (the annual cost of energy for a typical household is £1,971).
Higher-income households typically use more energy, so the top fifth may gain around £1,300 this winter from the EPG compared to £1,100 for the lowest-income fifth. Income is not the main predictor of energy use, however: more than one in ten households will gain over £2,000 from the EPG, while another 13 per cent will gain less than £500 (reflecting their electricity and gas use).
The EPG will reduce headline inflation by around four percentage points in January 2023, rising to almost six percentage points for the poorest tenth of households, at the cost of potentially prolonging elevated inflation or higher interest rates.
The foundation believes that based on current wholesale gas futures prices, support for households alone over the next six months would cost around £57 billion, rising to around £120 billion over the next two years.
Business support, many details of which are still to be finalised, will add tens of billions to this.
This package, they add, will increase the pressure on the Bank of England to increase interest rates faster than they otherwise would. An extra 1 per cent on interest rates would add around £11 billion in public borrowing in the first year.
