Thank you for contacting me about the Government's response to increases in the cost of living.
Minimum Wage and Public Sector Pay
As of April 2023, millions of workers are benefitting from record increases to the National Minimum Wage and National Living Wage (NLW). The NLW, which this Government introduced in 2016, rose by 9.7 per cent to £10.42 an hour. These increases follow recommendations made to the Government by the independent Low Pay Commission in autumn 2022.
Moreover, I strongly welcome that the Government has accepted the recommendations of the independent Pay Review Bodies in full, providing public sector workers with a consolidated wage increase of at least 6 per cent. The Government’s plan to deliver these pay rises is fully costed and will not mean reductions in frontline services. This is a fair deal that recognises the anxiety caused by cost-of-living pressures, supports recruitment and retention, and delivers one of the highest settlements in three decades.
The deal is also fiscally responsible, delivering pay rises that are broadly in line with the private sector. It would be neither fair nor affordable to meet unsustainable demands for pay rises well into double digits. To do so would be fiscally irresponsible, increasing national debt, passing the buck to future generations, weakening the foundations of our economy, and further fuelling inflation. I welcome that getting inflation down - the best tax cut there is - remains a top priority for the Prime Minister.
Support for Households
Johnson’s Government had already taken steps to help the lowest-income households with the cost of living before the April price cap rise, by: reducing the Universal Credit taper rate; increasing the National Living Wage; freezing fuel duty for the twelfth consecutive year; and launching a £500 million Household Support Fund.
Following Ofgem raising the price cap in April, the Government put forward a three-part support package to help both lower- and middle-income earners with the immediate adjustment. This includes:
- The Energy Bill Support Scheme ran from October 2022 to April 2023 and provided £400 off energy bills for households in Great Britain. This was an automatic, non-repayable discount which was applied in six instalments.
- Cost of Living Payment: A payment of £650 for households on means-tested benefits, including Universal Credit, Pension Credit and Tax Credit was made in instalments over 2022/23. A second Cost of Living Payment of £900 is being made in 2023/24, the first instalment of which has been paid.
- Disability Cost of Living Payment: A £150 payment in September 2022/23 and a second such payment in 2023/24 to help with extra costs for individuals on disability benefits. This is in addition to the £650 and £900 Cost of Living Payments for disabled people who also receive means-tested benefits.
- Pensioner Cost of Living Payment: Two Cost of Living Payments of £300 for pensioners, paid as an automatic top-up to the Winter Fuel Allowance. The first £300 payment was made in 2022/23, and the second payment will be made in Autumn 2023.
Previously, the Government had provided a non-repayable £150 cash rebate for homes in Council Tax bands A-D (equivalent to 80 per cent of all households) and £144 million of discretionary funding for local authorities to support those not eligible for the council tax rebate. Accordingly, all households would receive £550, with lower-income families receiving even more help.
Government action to support households, announced by former Prime Minister Liz Truss on 8 September, replaced the price cap with a new Energy Price Guarantee, which was initially set in place for the next two years to ensure that a typical household would not pay more than £2,500. The new Chancellor, Jeremy Hunt, announced reforms to the Energy Price Guarantee on 17 September 2022 in a statement to the House of Commons.
- The Energy Price Guarantee limits the amount you can be charged per unit of gas or electricity. The current price guarantee, set at £2,500, has been in place since 1 October 2022 and has meant that the Government has subsidised a significant amount of people's energy bills. This cap was due to end in April, however the Government is maintaining the EPG at £2,500 until June 2023, which will save the average household £160 for this period. This measure will ensure that households are supported through spring when energy costs are expected to remain high, and until the effects of reduced wholesale prices are expected to feed through into lower household bills later this year.
- An additional discretionary fund will be available for those households who are outside of the schemes. For example, households not on standard gas/electricity contracts.
- From April 2023, the price cap will rise so that a typical household will pay £3,000. The Energy Price Guarantee will then end in April 2024. It comes in addition to the £400 Energy Bill Support Scheme and will support millions of people through a difficult winter and meaning they will not have to face bills of £6,000 this winter.
Following a consultation, Ofgem has also confirmed that it will change the frequency at which the price cap is set to every three months, rather than every six. Ofgem stated that this change would provide much stability in the UK energy market, reducing the risk of further large-scale supplier failures, which cause huge disruption and push up costs for consumers.
The Government will also provide extra one-off payments of £900 for the eight million households on means-tested benefits, including Pension Credit; a second £300 Pensioner Cost-of-Living Payment; and another £150 for disability benefit recipients. The Chancellor also announced that the Government will provide £1 billion of extra funding by extending the Household Support Fund for another year.
Support for Businesses
While the majority of UK non-domestic customers are on fixed price energy deals, some are not. Businesses did not benefit from the Ofgem price cap.
Through the Energy Bill Relief Scheme (EBRS), the Government provided a discount on wholesale gas and electricity prices for all non-domestic customers whose bills had been significantly inflated in light of global energy prices. This ran from October 2022 to April 2023.
The EBRS has now been replaced by the Energy Bill Discount Scheme (EBDS) which will run until March 2024. The EBDS will support businesses and other non-domestic customers by providing a discount on gas and electricity unit prices. Eligible consumers will receive a per-unit discount to energy bills during the 12-month period from April 2023 to March 2024. The relative discount will be applied if wholesale prices are above a certain price threshold. For most non-domestic energy users in Great Britain and Northern Ireland these maximum discounts have been set at:
- electricity - £19.61 per megawatt hour (MWh) with a price threshold of £302 per MWh.
- gas - £6.97 per MWh with a price threshold of £107 per MWh.
Corporate Profits and the Cost of Living
The cost of living is being inflated by rising energy costs, provoked by surging demand after the pandemic as well as Russia’s invasion of Ukraine. The Government is assisting households with rising costs through a variety of policies, such as the Energy Price Guarantee, and through making ‘halving inflation’ one of the Prime Minister’s five key aims.
My ministerial colleagues are taking action to tax the temporary extraordinary profits of oil and gas companies. The Government introduced the Energy (Oil and Gas) Profits Levy in May 2022 to tax these companies, and to help fund vital support for millions of people facing rising bills.
With this levy in place, the UK has a tax rate of 75 per cent on profits from oil and gas production, which is expected to raise around £50 billion between 2022/23 and 2027/28. This is one of the highest tax rates for oil and gas production globally.
You will also be reassured to know that, in April this year, the Government increased the Corporate Tax rate from 19 per cent to 25 per cent for the most profitable companies with more than £50,000 of profits per annum. This will ensure a greater contribution from the most profitable companies.
The Government continues to meet with supermarkets and British food producers to reduce food prices, cutting costs for households across the country.
Thank you again for taking the time to contact me.
Craig Whittaker MP
July 2023
