The UK government has previously introduced a winter energy subsidy scheme. Under the scheme, the UK government capped home energy prices at 34p per kWh for electricity and 10.3p per kWh for natural gas. In addition, each household will receive a £400 energy grant from October. The subsidy will be distributed over 6 months, and families do not need to apply for it.
But critics say the subsidy scheme is heavily skewed toward wealthy households.
According to estimates by property portal Zoopla, there are around 1.2 million properties in the UK with at least five bedrooms, while the average five-bedroom household uses 4,300 kWh of electricity and 17,000 kWh of natural gas a year. The usage is higher between October and March when households typically consume 76% of their natural gas and 57.1% of their electricity during these colder months.
Media estimates indicate that taking into account UK government subsidy rules and changes in gas prices (higher in winter). Under current subsidy rules, the UK government’s gas and electricity subsidies for homes with at least five bedrooms this winter (October to March) will cost around £1.62bn. In addition, the £400 per household grant will add around £460 million to spend. That means a staggering £2bn in energy subsidies for Britain’s wealthy this winter.
The Institute for Fiscal Studies acknowledges that while subsidies go to every household, untargeted subsidies tend to benefit the wealthy to a greater extent. The government’s emergency measures ensured everyone was covered but at the cost of paying some of the wealthier energy bills. It expects half of the aid will go to the top half of the income distribution.
At present, the market is focusing on the medium-term fiscal plan released by the new Prime Minister Sunak on November 17. Treasurer Hunt has emphasized that the priority is to restore economic stability and market confidence in the UK’s “pay-as-you-go” fiscal discipline.
Media reports say the Treasury has drawn up 104 options to cut spending, hoping to fill a £35bn budget gap and get the public finances back on a sustainable track.
On the income side, possible options for the UK Treasury include further freezing the threshold for personal income tax rates and imposing additional taxes on energy manufacturing and banks.
On the spending side, there are now fears that the government will have to cut spending and scrap tax cuts amid a cost-of-living crisis triggered by the soaring mortgage, food, fuel, and heating costs. Treasurer Hunt has previously hinted at scaling back the energy subsidy scheme.