The Treasury is considering raising the energy cap from its current level of £2,500 from next April, with discussions in progress over whether to announce a new policy at next week’s autumn statement.
Two government sources said there was an active debate in the Treasury about announcing the level of support from April after Jeremy Hunt, the chancellor, cancelled Liz Truss’s plan to keep the current cap at £2,500 for a typical annual bill for two years.
A government source said no decisions had been taken yet but that raising the level of cap while adding extra support for vulnerable people was “one of the options”.
The Treasury does not have to announce the level of energy support it is planning to give until the spring, and may choose to wait until it is clear whether gas and electricity prices are coming down.
However, the spending involved is so significant that ministers and officials are considering whether they want to set out the estimated level of support at the autumn statement, with the added benefit that it may help people prepare for what they may need to pay.
The autumn statement is likely to contain many politically difficult decisions, from freezing some tax thresholds to increasing capital gains and dividend taxes, as well as spending cuts and potentially delaying social care reforms. Hunt may also continue and increase the windfall tax on oil and gas producers to help continue to pay for billions of extra support. He could also move to cap the revenues of electricity generators.
He had previously said he wanted to ensure the energy price scheme was moving towards a more targeted programme to help those who needed it the most. However, it is understood that continuing some universal level of support, possibly in the form of a higher energy cap, is also on the table.
Figures from the Bank of England’s latest monetary policy document show that its experts have assumed that government support will continue for households about halfway between the current cap of £2,500 and the projected energy price. This is forecast to be about £3,700 in the three months from April and about £3,200 the quarter after, which could suggest a cap of about £2,850 to £3,100. However, that does not take into account that support could be more weighted towards the most vulnerable.
The energy price guarantee was announced in September by Liz Truss as a two-year measure for all households and was later truncated to the six months until the end of March, followed by further, more targeted support.
An “observation window”, which is used by the energy regulator, Ofgem, to calculate its price cap, will close next week. Analysts at the City bank Investec forecast that the cap for the first quarter of next year will sit at £4,211, although the price guarantee means that this figure does not affect households bills, simply the amount that the Treasury will pay to energy suppliers.
The price cap for the three months from April, which will affect consumers, is forecast to fall to £3,750 and then £3,192 for the following quarter. This would still be far higher than the £1,277 the price cap sat at this time last year.
The Investec analyst Martin Young said: “Next week’s fiscal statement may well bring clarity of sorts as far as government intervention in electricity generation is concerned, but as we head into winter, it is clear that for many, visibility on enduring help with high energy bills is imperative for physical and mental wellbeing. This is very much an acid test as to whether the government ‘gets it’.”
• This article was amended on 12 November 2022 to refer to the possible freezing, rather than raising, of some tax thresholds in the autumn statement.
