The UK government has given itself until April to find a solution to rising gas prices as that’s when consumers would start to feel the bite of a new price cap on utility bills.
According to a person familiar with the matter, energy regulator Ofgem is expected to announce a new price cap on February 7, but ministers believe they have a few more months to assess whether any assistance is needed to help mitigate the impact.
On Wednesday, Business Secretary Kwasi Kwarteng will meet with utility bosses. An industry proposal for loans to help suppliers delay some of the April hike is being discussed, as are cuts to the Value Added Tax levied on bills.
Wholesale power and gas prices soared to new highs, fuelling rising inflation and a cost-of-living crisis across Europe. Consumer groups and charities in the UK are urging politicians to intervene, citing reports of low-income consumers having to pick between paying for heat and buying food.
According to the Resolution Foundation, 2022 will be a "year of the squeeze" on household budgets, as wages stagnate, taxes rise, and prices climb. It is estimated that working households will lose £1,200 ($1,625) per year starting in April.
On Sunday, 20 Conservative MPs wrote a letter, requesting that Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak remove the 5% VAT on energy bills, as well as the environmental charges that they claim account for nearly a quarter of electricity rates.
The surge in prices has been exacerbated by the collapse of two dozen smaller energy suppliers, with their customers being passed on to other firms and the costs spread across the industry.