Every household in the UK is to get an energy bill discount of £400 this October as part of a package of new measures to tackle soaring prices.
The poorest households will also get a payment of £650 to help with the cost of living, Chancellor Rishi Sunak said.
It follows warnings that millions could be left struggling if energy prices rise again in October as expected.
Mr Sunak said he had offered “significant support” for households who were facing “acute distress”.
The package of new measures, worth £15bn in total, will also offer more targeted help to pensioners and the disabled.
The cost will be partly offset by 25% windfall tax on oil and gas firms’ profits, which have soared in recent months.
It comes a day after Sue Gray’s critical report into lockdown parties in Downing Street and follows intense pressure on the government to do more to help people with the cost of living crisis.
Announcing the support in the Commons, Mr Sunak said: “We know that people are facing challenges with the cost of living and that is why today I’m stepping in with further support to help with rising energy bills.
“We have a collective responsibility to help those who are paying the highest price for the high inflation we face.”
Mr Sunak also announced:
- Eight million households on means-tested benefits will get £650 paid directly into their bank accounts in two lump sums – one in July, the other this autumn
- There will be separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits – groups who are “most vulnerable to rising prices”
- The emergency Household Support Fund, which is allocated by councils in England, will be extended by £500m to £1.5bn. The devolved governments will receive equivalent funding.
Earlier this week, UK energy regulator Ofgem said the typical household energy bill was set to rise by £800 in October, bringing it to £2,800 a year. Bills had already risen by £700 on average in April.
Ofgem warned that 12 million households could be pushed into fuel poverty, where they are paying more than 10% of their household income on energy.
It comes as the prices of food, fuel and other goods also surge, pushing inflation – the rate at which prices rise – to a 40-year high.
‘Hit hard’
Mr Sunak blamed the war in Ukraine, recent lockdowns in China and the post-pandemic recovery for the surging prices. But he said the situation had “evolved and become more serious” pushing the government to act.
Under the new measures, the government will scrap a plan to give everyone in England, Scotland and Wales £200 off bills from October which would be repaid over five years.
Instead, that sum will be doubled and will not need to be paid back.
The measures add to around £17bn of support already given by the government. This included one-off £150 council tax rebates for most homes in England and Wales and matched funding for the other devolved nations.
The government has until now rejected the idea of a windfall tax on energy firms’ profits, saying it could deter investment in the UK.
But Mr Sunak said the oil and gas sector was “making extraordinary profits” and that he was “sympathetic to the argument to tax those profits fairly”.
He said the tax would raise about £5bn this year and be scrapped when oil and gas prices – which have surged recently – return to more normal levels.
However, in seeking a “sensible middle ground” energy suppliers will be able to apply for tax relief of 90p for every pound they invest in UK oil and gas projects.
Mr Sunak said he also believed there was a case for taxing electricity suppliers more, announcing a consultation on the idea.
Rachel Reeves, Labour’s shadow chancellor, said: “After five months of being dragged kicking and screaming, the chancellor has finally come to his senses, U-turned, and adopted Labour’s plan for a windfall tax on oil and gas producer profits to lower bills.”
But business lobby group the CBI warned the windfall tax would be damaging to investment needed for Britain’s “energy security and net zero ambitions”.
Shares in major oil firms BP and Shell were both up by more than 1% following the announcement.
Paul Johnson, director of the Institute for Fiscal Studies think tank, called the measures “hugely redistributive”, with the chancellor “taking from high earners and giving to the poor”.
But he noted that the chancellor was raising taxes to “historically high levels” for much of the country, although he added that was the “right thing” thing to do in the circumstances.
Debt charity Turn2Us welcomed the package, but warned the scale of the cost of living crisis “must not be underestimated”.
“For people who are in crisis currently, one-off payments will only act as a sticking plaster until longer term investment is made to boost their overall income,” said Michael Clarke, its head of information programmes.
