Economists have warned that Rishi Sunak will come under pressure to deliver another emergency aid package next year to help millions of people deal with high energy bills.
The Chancellor on Thursday announced a £15 billion support package including a £400 energy bills rebate for all families in the autumn and additional payments worth £650 for eight million of the poorest households.
But with energy prices set to remain high well into next year - partly caused by the ongoing war in Ukraine - economists fear Mr Sunak may have to dish out billions more next Spring, risking pushing inflation higher.
Paul Johnson, Director of the Institute for Fiscal Studies, told BBC Radio 4’s Today Programme: “I think the biggest risk here is that the Chancellor will be tempted to do this again and again and I think if that happens then we really could be in for a bit of trouble.
“He has got the most extraordinarily difficult decisions to make later this year on public sector pay and then he will be under pressure I suspect again this time next year when energy prices will still be high, households will still be struggling to put more money in.
“I think if he is tempted to continue putting money into an economy where inflation is very high then that becomes a significant risk.”
Although Mr Sunak insisted his intervention, on Thursday, offered “significant support” which will help people with the cost of living crisis now and in the autumn, he failed to rule out having to deliver another package of support next year.
The Chancellor told BBC Breakfast: “We are sitting here in May, we don’t know what energy bills will be next April.
“And if people can judge me by my actions over the past couple of years, I’ve always tried to be responsive to the situation that the country and economy is experiencing and will always act like that.”
Inflation hit a four decade high in April of 9 per cent and is forecast by the Bank of England to hit 10 per cent later this year. But poorer households could be facing inflation of 14 per cent because they spend more of their incomes on food and energy, prices for which have soared.
The energy regulator Ofgem said earlier this week that the energy price cap is set to rise by around £800 in October to nearly £2800. The cap rose from £1277 to £1971 in April meaning people face a 119 per cent rise in their energy bills this year alone.
Amid concerns over longer term inflation - with mortgage rates also rising as the Bank of England raises interest rates - Mr Sunak tried to reassure people that he had a plan to tackle rising energy prices and inflation.
“I do want people to be reassured that we will get through this,” he told the BBC.
Earlier on Sky News he said the UK Government was drawing up plans to reform the UK energy markets and protect households from spiralling bills in future.
"We do have plans in place to reform that market," he said. "So other countries in Europe like France, Italy, Spain, Portugal, Greece, have all taken steps to reform that market, to correct that.
"Now we have a plan to do the same thing. So what we’re sitting down now is figuring out well how quickly can that be put in place? And in the interim, what would be the appropriate steps?"
But Carl Emmerson, deputy director of the IFS, added on Times Radio: “If we get to next April and energy prices remain high then it will be pretty surprising if many households weren’t saying look my energy bills are still very high, I’m still struggling, I got £400 last year why can’t we have that again.
“There is clearly a risk here that as long as energy prices remain as high the CX will be under pressure to maintain at least some of these payments going forward.”
