Former Chancellor Proposes Social Tariff to Shield Households from Energy Crisis
In response to escalating energy costs triggered by the Iran war, former Conservative Chancellor Jeremy Hunt has put forward a proposal for a "social tariff" aimed at providing relief to lower-income British households. This initiative comes as the Resolution Foundation, a prominent thinktank, warns that the typical working-age household could see their income decline by £480 this year due to rising bills.
Targeted Support for Vulnerable Families
Speaking at a panel discussion hosted by the Resolution Foundation, Hunt emphasized that a social tariff represents the most effective approach to delivering targeted assistance. He argued that this mechanism would enable benefits to reach low-income families regardless of their benefit status, ensuring support is directed where it is most needed.
Hunt proposed a "targeted, time-limited" package ranging from £5 billion to £10 billion for one year. He suggested that such a measure could be implemented within Chancellor Rachel Reeves's fiscal rules without exacerbating public debt or hindering economic growth. However, he cautioned that funding the social tariff might require slightly higher bills for the majority of households to subsidize lower costs for the poorest 20%.
Economic Impact of Rising Energy Prices
The Resolution Foundation's analysis reveals a stark economic outlook. Prior to the Iran war, which began in late February, the typical working-age household was projected to experience a 0.9% income growth this year. Now, that figure has shifted to a potential 0.6% decline, translating to an average loss of £480 per household.
Oil and gas prices have surged sharply in recent weeks, with Brent crude exceeding $100 per barrel. This increase is expected to drive up energy bills this summer, potentially erasing the £117 average savings households gained from the regulator's adjustment of the energy price cap in April.
Disparities in Household Finances
The foundation's research highlights significant disparities among different income groups. While the poorest fifth of households are forecasted to see just 1.2% income growth this year—down from a pre-war projection of 2.8%—families in the bottom half of the income distribution with three or more children fare better. The abolition of the two-child limit is estimated to deliver a 7.7% income growth for this group, compared to zero growth for poorer families with fewer children.
Expert Insights and Market Forecasts
Jonathan Marshall, principal economist at the Resolution Foundation, noted that energy bills are likely to rise this summer, offsetting recent savings. Hunt acknowledged that while the current energy price increases are not as severe as the 2022 spike following Russia's invasion of Ukraine, the market conditions preclude a repeat of universal support packages like those implemented under former Prime Minister Liz Truss.
Dhara Vyas, CEO of Energy UK, stressed the urgency of transitioning to clean energy sources to reduce Britain's dependence on volatile oil and gas markets. "Our energy security is more at risk now than it has ever been," she stated.
Analysts anticipate elevated crude oil prices in the coming months. JP Morgan Chase forecasts levels above $100 per barrel in the current quarter, with a potential easing in the second half of the year. Goldman Sachs has adjusted its Brent crude forecast to an average of $90 per barrel for the second quarter, down from $99 previously.
Call for Immediate Government Action
James Smith, chief economist at the Resolution Foundation, urged the government to act swiftly. "Despite hopes for a sustained peace, the path of this conflict remains uncertain and energy prices remain well above prewar levels, meaning many households face a decline in their purchasing power this year," he said. "De-escalation is certainly welcome, but damage to household finances this year is to a large degree already done. The government should act now to prepare a social tariff that reaches households falling through the cracks this winter."
The Resolution Foundation estimates the cost of implementing a social tariff at £3.7 billion and has called on ministers to accelerate its development before winter, when energy costs are expected to peak. This proposal underscores the growing pressure on policymakers to address the deepening cost-of-living crisis exacerbated by geopolitical tensions.
