How people may get help to pay high energy bills

With rising energy costs set to push gas and electricity bills even higher, the government is looking at ways to soften the blow. But what route, if any, will it take?

It's my understanding that Chancellor Rishi Sunak is considering a multi-billion pound intervention of a temporary and targeted nature, aimed at mitigating the coming record rises for the most vulnerable households.

It would be an "energy price-based" intervention, not a tax or benefit-based one. So that rules out the cut to VAT on energy bills called for by the Labour party.

A temporary intervention can be justified on the basis that most of the factors pushing up energy prices are freakish one-offs - from the mismatches in supply that followed the lifting of pandemic restrictions, to the geopolitical tensions with Russia.

The open question is just how targeted this intervention will be.

On its current trajectory, the energy price cap, which limits what providers can charge consumers, is likely to rise to close to £2,000 a year for dual fuel customers. That will treble the number of households under "fuel stress", in other words spending more than a tenth of their income on energy, to 6.3 million.

One way to help this group would be to widen the Warm Homes Discount (WHD) scheme, which sees £140 automatically taken off the annual energy bills of anyone receiving pension credit. It is currently funded by increasing everyone else's bills.

There is talk of doubling the WHD and then extending it to working-age households receiving Universal Credit. If the taxpayer met that £2-3bn cost for a year, then the policy could have an impact, but it would require big changes to the WHD system.

Another option for the government would be to look at green levies.

Everyone's energy bills contain about £200 of levies annually to support green energy and social support schemes. If the taxpayer stepped in for a year to fund these commitments, it could turn the heat down on those rising energy prices, but this policy is much harder to target.

Yet another option would be some sort of smoothing mechanism to support energy companies with loans, known as a "Cost Deferral Mechanism".

It could operate with or without help from the Treasury or the Bank of England, but British Gas-owner Centrica is not a fan, having described it as a "bailout". It is unclear, however, why it does not think asking the taxpayer to shoulder renewable and social levy obligations is not also a bailout.

The Treasury is likely to announce any decision on support before the regulator Ofgem unveils the new price cap next Monday, so the chancellor and the Prime Minister will have to come to an agreement imminently.