Are hard-up households going to get a £500 payout?

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·Political Correspondent, Yahoo News UK
·5-min read
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LONDON, ENGLAND - JANUARY 19: Rishi Sunak, Chancellor of the Exchequer, leaves parliament after attending PMQs on January 19, 2022 in London, England. The Prime Minister faces MPs in the House Of Commons as speculation over a vote of no confidence in his leadership mounts. (Photo by Leon Neal/Getty Images)
Rishi Sunak. (Photo by Leon Neal/Getty Images)

The government is believed to be considering new plans to help those facing significant financial hardship in the coming weeks.

Experts warn that millions of Brits could be hit with a "catastrophic" cost of living crisis in April, as the energy price cap increases and planned rises to National Insurance kick in against a backdrop of high inflation.

The government is coming under increasing pressure to support those most in need of financial assistance, with a blanket VAT reduction and the lifting of environmental levies on energy bills just two of the options proposed.

£500 per household?

Another scheme reportedly under consideration is a £500, one-off payment to those struggling, in which the Chancellor, Rishi Sunak, would make direct payments to those who need it the most.

On Friday, the business secretary Kwasi Kwarteng said households will need to wait until the Budget in March to find out what support will be announced.

Read more: 'Devil's choice': The people most at risk from the fuel crisis

The proposal would be comparable to a similar stimulus scheme introduced by Donald Trump at the beginning of pandemic to help Americans with the financial hit of COVID-19. However, those cheques were sent to everyone - under plans Sunak is considering, it appears they would be focused on the most vulnerable.

Kwarteng insisted on Friday that the government is “trying to work out the best way to deal with what is a really, really serious problem”.

“Lots and lots of things have been discussed, and I’m sure that’s one of the things that we’ve been talking about,” he said.

“My officials in the department speak to Treasury officials, and ministers speak to each other all the time.”

Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng speaking at the the Northern Ireland Business and Innovation Showcase at the QEII Centre in Westminster, London, marking the centenary of Northern Ireland. Picture date: Wednesday September 15, 2021.
Business secretary Kwasi Kwarteng said any new announcements would come during the Spring Statement in March. (PA Images)

But, he added: “I think we’ve got to wait and see what the actual announcement is."

The government has so far been reticent to give any clear indication of what, if any, help will be forthcoming - though it has been crystal clear that the one-year 1.25% National Insurance rate rise due in April to help pay for social care and NHS funding will go ahead.

"The reason for [National Insurances rises] is we've obviously got this enormous NHS backlog, as well as the long standing problems we all know we face with social care and ageing society," Treasury minister Simon Clarke said on Thursday.

Read more: Energy crisis: What is fuel poverty?

"And you simply cannot fund the kind of increase that we're looking to deliver, £12bn for the NHS budget and £5bn over the next three years for social care, you can't do that without raising taxes."

However, Clarke was much less definitive when asked to rule out slashing VAT on energy bills - despite Sunak previously indicating this would not be the right call.

"[Cuts] to VAT is not a very targeted way of helping people," he said .

Watch: Energy bills crisis: People will die in cold homes, warns alliance of charities urging government action

"But, obviously, much of the benefit - if we're going to be really taking a distributional analysis - would show that this benefits people with larger homes.

"We are always focused on making the most effective interventions."

What is Labour offering?

Tory MPs voted down a Labour motion last week in the House of Commons which sought to cut energy bills, with the prime minister previously dismissing slashing VAT as a "blunt instrument".

But shadow chancellor Rachel Reeves said the plans would save millions of Brits hundreds of pounds.

"Our plan would save households £200 off their bills, with up to £600 in total for those who need it most," she said.

Read more: Cost-of-living crisis: 2022 'could be worse than the financial crisis'

“We will pay for this with a windfall tax on North Sea oil and gas profits.

"These companies have profited massively because of exploding prices."

What do the experts say?

Alarmingly, industry experts have warned that soaring energy prices may not just be limited to when the energy price cap rises in April.

Chief executive of Energy UK, Emma Pinchbeck, the trade body for suppliers, said bills could increase further in October after the predicted 50% jump in the spring.

File photo dated 11/10/13 of a general view of a gas hob burning. Soaring gas prices consigned a string of energy suppliers to the graveyard in 2021, and will lead to runaway household bills next year as the sector continues to struggle. Energy suppliers had been paying 54p per therm of gas at the beginning of the year. By September, that had reached more than �3 and peaked even further to �4.50 just before Christmas. Issue date: Thursday December 23, 2021.
Energy bills are set to soar by 50% in April. (PA Images)

The Social Market Foundation think tank has said cash payments of up to £500 would be the best answer to the cost-of-living crisis.

Dr Aveek Bhattacharya, the organisation’s chief economist, said households where no-one is a higher-rate taxpayer should get a payment of £300, with an extra £200 for those on Universal Credit or legacy benefits.

And low and middle income think tank, the Resolution Foundation, have also called for a similar move - warning that 2022 will be the "year of the squeeze" and a potential "catastrophe" for millions.

Read more: Households will be 'devastated' overnight by soaring energy bills

"A £300 one-off payment to all 8.5 million low-income households would cost up to £2.5bn," said the think tank's chief executive, Torsten Bell.

"A large amount, but the minimum we’re going to need to mitigate rising energy bills.

"And once we’re through this crisis we mustn’t forget the bigger picture – the need to tackle our failing energy sector, poorly insulated housing and reliance on fossil fuels."

Watch: Cost-of-living crisis lies in wait for Boris Johnson as he fights to save his job

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