Steam is seen rising from central heating vents of a house
Government sources said they expect a plan to cut energy bills to include an expansion of help to vulnerable households © Getty

Boris Johnson is preparing to announce measures to contain soaring energy bills, with a package that could reduce the cost by £200 per household and give extra help to vulnerable people.

The UK prime minister wants to unveil the plan to help tackle the cost of living crisis to coincide with an announcement on Thursday by Ofgem, the energy regulator, of a sharp increase in the cost of electricity and gas from April.

Ofgem had originally been due to announce the new level of the country’s energy price cap, which will affect 22mn households, next week but has accelerated the announcement.

Government sources said they expected the package to include an expansion of help to vulnerable households — around 2mn already qualify for a “warm homes” discount.

Industry officials expect the government to underwrite a loans package that would cut all household energy bills by about £200 — at a cost of more than £5bn. The Treasury declined to comment on a Times report that Sunak had signed off on the deal.

Last month the Financial Times reported that Sunak was exploring a mechanism in which Treasury support to energy companies — which would be passed on through lower bills — would be clawed back when wholesale gas prices fell.

Energy industry sources pointed out that a universal rebate of £200 per household would be roughly equivalent to cutting VAT and some of the “green” levies on energy bills, designed to help finance the buildout of renewable energy generation.

Industry sources warned that the likely structure of the loans, that would see the government claw it back through household energy bills over a number of years, would mean the effects of the recent wholesale energy price crisis would be felt by consumers for longer.

Analysts have forecast that without government intervention the energy price cap would jump by about 50 per cent from April to more than £1,900 per year per household.

Chancellor Rishi Sunak has some fiscal room for manoeuvre this year as public borrowing was £12.9bn lower than official forecasts in the financial year to December.

The chancellor and Johnson have also agreed to press ahead with a £12bn national insurance rise in April to fund the NHS and social care, adding to pressure on Sunak to come up with a generous package to address the cost of living crisis.

“In the past, you’ve seen that Rishi has been bold and gone big,” said one ally. The aim would be to cushion the impact of higher energy bills on the cost of living just weeks before crucial local elections on May 5, which many Tory MPs view as a referendum on Johnson’s faltering leadership.

Three schemes currently provide financial help to pensioners and those on low incomes with their energy bills; Sunak is looking to increase the size of payments available and the number of households that qualify.

These schemes are the £140 annual warm homes discount, the winter fuel payment of up to £300 and the cold weather payment of £25 a week when the temperatures fall below 0C.

The warm homes discount already grants more than 2mn households a £140 reduction on their energy bills between October and March every year, although it is funded by all other consumers.

Energy chief executives have warned ministers that an expansion of the scheme, to both increase the size of the discount and to apply it to even more households, should not be funded by other consumers but would need a top-up from government.

Philippe Commaret, managing director of Customers at EDF, Britain’s fourth biggest energy supplier, said ministers needed to “act now, especially to support those most in need”.

Ofgem has also been working on plans to adjust the price cap more often so it can respond to surging wholesale energy prices faster. Currently the cap is adjusted only twice a year, in April and October.

The regulator has, however, scrapped plans for a separate loan scheme involving banks that would have avoided the costs of rescuing the customers of failed energy suppliers being lumped on to bills in April. The regulator is understood to have dropped the plan after talking to lenders, including NatWest and Barclays, and concluding that the borrowing costs would have been too high.

Torsten Bell, chief executive of the Resolution Foundation, warned last month of a “catastrophic” impact on household finances without government intervention.

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