Brits 'should be handed £500 cash payment' to help with household bills, urges economist

Boris Johnson is facing calls to urgently increase financial support for Brits amid the escalating cost-of-living crisis driven by soaring energy bills, rising inflation, tax hikes, and the war in Ukraine.

On Wednesday, the prime minister defended the help already on offer as Labour leader Keir Starmer called for a windfall tax on the profits of gas and oil firms to generate further funds to help families.

The government's current support package will see all 28 million households in Britain given a £200 up-front rebate on their energy bills from October. This will be recouped by hiking bills by £40 per year over five years from 2023. It has also promised a £150 council tax rebate for homes in bands A to D.

And while Johnson ruled out the prospect of a windfall tax, some economic experts have said the government must act soon to protect those most at risk of being plunged into fuel poverty.

At a work and pensions select committee in parliament on Wednesday, Aveek Bhattacharya, chief economist at the Social Market Foundation think-tank, called for a £500 cash payment for everybody except high-rate taxpayers.

Read more: 'Extraordinary' warning energy bills may go much higher than £3,000

The proposal would be comparable to a similar stimulus scheme introduced by Donald Trump at the beginning of pandemic, which was sent to all Americans to help with the financial hit of COVID-19.

“I would be in favour of trying to have a very, very broad base cash payment to more or less everybody - or, perhaps, excluding higher rate taxpayers - to recognise the fact that everybody is going to be suffering at least a bit," said Bhattacharya.

"But with a higher payment targeted on low, lower income households on Universal Credit".

There were reports the government was considering such a scheme to tackle soaring energy bills in January. Instead, Rishi Sunak rolled out an "Energy Rebate Scheme" after Ofgem announced the energy price cap would increase by 54% on 1 April - meaning the average UK household's annual energy bill will rise by £693 to £1,971.

However, the scheme has been widely criticised for being partially repayable and confusing.

In the week following Sunak's announcement, Savanta ComRes polling for Yahoo News UK revealed one in four Brits did not realise the £200 rebate will have to be paid back, and another quarter had not even heard of the policy.

Bhattacharya also criticised the chancellor's scheme.

“A simple cash payment is better than a complex, convoluted scheme - as we’ve seen with the chancellor’s measures," said Bhattacharya. "There’s been a lot of misunderstanding, a lot of confusion".

Labour has called for the government's energy bills scheme to be scrapped with Starmer branding it a "total mess", asking: "When will the Prime Minister force the Chancellor into a U-turn?"

The looming crisis could not be more stark.

On Tuesday, the Resolution Foundation warned households in Britain could be facing the sharpest decline in real incomes since the 1970s, which could fall by 4% for working age people in the financial year 2022 to 2023.

The real incomes drop would represent a fall of £1,000 per household for non-pensioners – a scale of decline which would normally be associated with recessions, according to researchers.

Inflation is predicted to hit around 8% this spring with the foundation's chief executive, Torsten Bell, warning that living standards may become worse than during the economic shutdown sparked when the UK was plunged into a COVID lockdown in March 2020.

"Even when you get to the middle of the 2020s, we still won’t be as well off as you were during the pandemic," he said. "That’s how big what is going on - we’ll be pulling our way back to where we were when it was when the actual lockdowns were going on."

A government spokesperson said: “We’re providing over £20 billion to support people with the cost-of-living pressures they’re facing and will continue to do everything we can to protect consumers and the public.

“This includes the £9.1 billion Energy Rebate Scheme which will provide a £200 discount from October for all households in Great Britain and a £150 rebate for the majority of households in England from April.

“The energy price cap will also continue to ensure that over 15 million households pay a fair price for their electricity and gas in the months ahead."

Watch: Cost of living crisis will be ‘fatal’ for some children in poverty - Jack Monroe