Extra £12bn ‘needed to maintain value of energy bills help’

Paul Johnson, director of the IFS, says ministers are ‘still playing catch up’

Ministers need to announce another £12 billion of help for households to keep pace with higher than expected energy prices forecast for this autumn, a leading financial think tank has warned.

The Institute for Fiscal Studies (IFS) said the money was required if the government still wanted to provide the same level of aid it set out this spring.

The effect of that support, unveiled by the then chancellor Rishi Sunak, has shrunk as predicted energy bills skyrocket.

But the IFS also warns that any extra help would create “upward pressure” on already high inflation.

The energy price cap, a ceiling on how much companies can charge, is currently set at £1,971 a year.

But it is expected to climb to almost £3,600 a year in October and to over £4,200 in January.

The IFS points out that the cost of living is now expected to be 11.3 per cent higher this financial year than last, with inflation peaking in the last quarter of this year at 13.1 per cent.

However, the think tank adds, because poorer households spend more of their income on energy, the poorest group in society will experience inflation of an “eye-watering” 18 per cent in October, compared to 11 per cent for the richest group.

Paul Johnson, director of the IFS, said: “The government is still playing catch up as inflation and the cost of energy continue to spiral upwards. Just achieving what they wanted to achieve back in May will cost an additional £12bn, and a package on that scale will still leave many households much worse off.”

“Given the costs, there are genuine and difficult trade-offs here. For both households managing their budgets and the Government managing the economy’s finances, some clarity on strategy is urgently needed,” he added.

Boris Johnson has been accused of presiding over a ‘zombie’ government while the two Tory leadership contenders Liz Truss and Rishi Sunak battle it out to succeed him as prime minister.

Labour has announced plans it says would halt price rises in October and January, saving the typical family £1,000 .

The proposals would cost £29bn and be paid for in part by expanding a windfall tax imposed on oil and gas giants. The rest of the money would come from the £14bn set aside by the government for extra support to cover energy bill rises and from another £7bn the party says would be saved in debt interest payments through reduced inflation.