Cost of living crisis: four things the government could do to help
The cost of living crisis hitting millions of households is about to get a whole lot worse.
Gas is the bedrock of power generation in the UK, supplying millions of homes directly and accounting for about 45% of electricity supply. It has rocketed in price, up 400% in the past year and 1,000% since 2019, according to the ICE futures market.
The prospect of a tripling of the energy price cap in October to £3,600 – from £1,254 in 2019 – lies behind the Bank of England’s warning of a long recession from this autumn, characterised by soaring inflation, falling living standards and rising unemployment.
The central bank’s response is to raise interest rates to bring down inflation. Liz Truss, ahead in the race to be Tory leader and prime minister, has a remedy – wide-ranging tax cuts to spur growth. Labour would provide targeted support to those struggling the most with their bills, coupled with measures to increase investment.
But there are calls for more to be done. Here we discuss some options.
What if the regulator Ofgem said bills are not going up in October? About half of the current 9.4% inflation rate can be accounted for by energy cost increases, and so the effect would be to cap further price rises. A lower inflation rate would take the pressure off workers to bargain for higher wages and, without strong wages, the Bank would have less need to increase interest rates.
About 23 million households have their domestic energy bill governed by the energy price cap. Ofgem says if it kept the average dual-fuel tariff at April’s £1,971, then the rising cost of wholesale gas would be swallowed by the industry.
The regulator has decided against this route because it says forcing utility companies to absorb costs would make them all
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