Rishi Sunak urged to raise benefits to help people pay energy bills

Britain's benefits system must be overhauled so welfare payments are increased every three months and linked to rising energy bills, a report backed by senior Tories has said.

The Centre for Social Justice is urging Rishi Sunak, the Chancellor, to call an emergency Budget and give four million people on Universal Credit an inflation-matching boost of £729 over the coming year.

It also wants Mr Sunak to restore the amount workers can earn without affecting their benefits to 2015 levels, warning that households face a “perfect storm” of rising prices and taxes.

The Telegraph understands the Treasury has signalled interest in the proposals, which are costed at £3.8 billion, amid a growing expectation that Mr Sunak will have to unveil further help before the autumn.

Benefits are uprated every April, based on inflation for the previous September. Universal Credit went up 3.1 per cent last month, whilst prices rose by 9 per cent and the energy price cap by 54 per cent.

Sir Iain Duncan Smith, the former Tory leader, said bringing the next increase forward to June would “provide an inflationary shield for those most struggling”.

Senior Conservatives including Stephen Crabb, a former work and pensions secretary, and MP Sir Bernard Jenkin also called on Mr Sunak to increase benefits payments.

A government spokesman said ministers were providing £22 billion in cost of living support, adding: “We recognise the pressures on the cost of living and we are doing what we can to help.”

It comes after a Cabinet minister warned that energy firms were breaching their licences by threatening to switch the poorest families to pre-payment meters.

Therese Coffey, the Work and Pensions Secretary, urged Ofgem to investigate companies for cutting off customers who paid their bills straight from Universal Credit.

Last month, the Government paused the Fuel Direct Scheme to stop energy firms from automatically hiking costs for the poorest households. The programme helps around 100,000 people who are in debt and cannot afford to pay their bills.

Ms Coffey said several energy firms had objected to the move and two were telling customers they would no longer offer Fuel Direct payments.

In a letter to the Jonathan Brearley, the watchdog’s chief executive, she said that stance was "unacceptable” and had “generated real concern”.

Some claimants have been “told that ongoing consumption payments are no longer available, and the only option for them was a pre-payment meter”, she wrote.

The companies’ actions appeared to be “a direct contravention” of obligations “that require suppliers to support customers in payment difficulty”, Ms Coffey added.

Ofgem has the power to levy multi-million pound fines for licence breaches.