UK households and businesses will pay much more for their energy next year as the government cuts subsidies designed to mitigate soaring gas and electricity costs, chancellor Jeremy Hunt has said.
In his Autumn Statement on Thursday aimed at shoring up the national finances, the chancellor said state support for household energy bills would be extended for 12 months from April. But the government will increase the cap for a household with typical usage to about £3,000 a year from the subsidised level of £2,500 this winter.
It said the majority of businesses would not receive extra support beyond April, arguing that subsidising their costs was “not sustainable”.
Typical households will from April be paying almost three times as much as last year. They will be paying about £900 more than in 2022, taking into account a one-off, blanket £400 discount provided by the government this year. Businesses could be hit by even larger rises once government subsidies are removed.
The increase in the household cap will free up £14bn of savings compared with the original policy set out by Liz Truss’s government. Most of that money will go towards additional support targeted at the most vulnerable groups, including people on benefits, pensioners and the disabled.
The announcements came as Hunt outlined a £55bn consolidation aimed at reassuring investors about the UK’s fiscal credibility, while addressing the pressures of the cost of living crisis.
The government said that while households would receive support until April 2024, it was “not sustainable for government to continue supporting large numbers of businesses” beyond next spring.
Instead, ministers will withdraw support for most corporate energy consumers from March 31, after which the government will only offer “significantly lower” help for the most vulnerable industries.
UK businesses have warned of a “cliff edge” this spring without extra help, but the government wants industry to make efforts to reduce consumption and find alternative solutions.
“The government recognises that some businesses, such as those which are highly exposed to energy prices and unable to pass through or absorb these costs sufficiently, may continue to require support beyond March 2023,” the Treasury said.
“However, the overall scale of support the government can offer will be significantly lower, and targeted at those most affected to ensure fiscal sustainability and value for money for the taxpayer.”
The government could amend the household energy support scheme, potentially lifting the capped level above £3,000 if another sharp rise in wholesale gas prices necessitates it. Households with very high usage are also likely to find their support curbed after April, the government said.
Truss in September announced energy bills for the typical household would be limited to £2,500 for two years, with the government absorbing the difference between the capped unit price and higher wholesale costs. But after Hunt was appointed chancellor in October in a failed bid to save her premiership, he cut the duration of the scheme to six months, citing concerns about affordability.
The government has been helped by a drop in gas prices in recent weeks.
Total spending on household and business energy support was originally projected to be £60bn over six months this winter, but has since fallen to about £43bn.
Hunt said the UK needed to pursue “energy independence” and recommitted to the Sizewell C nuclear project and boosting the build-up of renewable energy sources. He also unveiled an ambition to cut national energy consumption by 15 per cent by 2030.
He pledged £6bn of capital spending on an insulation programme for Britain’s draughty housing stock in the three years from 2025. That would represent an increase in the government’s current insulation programme, under which £6.6bn is being spent over five years.
The government has been criticised for the failure of its Green Homes Grant. Aimed at kick-starting the decarbonisation of homes, the £1.5bn initiative was launched in September 2020 but was scrapped just six months later.
Environmental campaigners suggested the new policy fell short of prime minister Rishi Sunak’s pledge during this summer’s Tory leadership race to “turbocharge” the rollout of home insulation.
“What is missing is a ramp-up of funding now to insulate more homes in the next two years as energy bills go through the roof,” said Juliet Phillips at climate change think-tank E3G.