Middle earners need urgent help to survive energy crisis, Chancellor warns

The National Institute of Economic and Social Research said the increase in the price cap would add 2.7 percentage points to inflation in October alone, taking the headline rate to 12.5 per cent.

Sustained bill increases are expected to push the rate to 14.2 per cent in January and keep inflation in double digits until at least September 2023, NIESR said.

The Joseph Rowntree Foundation said some pensioners faced spending 40pc of their disposable income on energy bills next year, up from 10pc just a year ago.

The debate now is around whether more help needs to be extended to those in higher income groups. One idea is extending the household support fund, which local authorities can use at their discretion to help those struggling with their bills.

In the interview, the Chancellor said the new administration needs to commit to fracking to ensure Britain has enough gas supplies, and revealed he is meeting the US Treasury Secretary next week to discuss beefing up Britain’s nuclear energy capability.

He denied the Tory leadership campaign has paralysed the Government, as he warned that Labour was playing into Vladimir Putin’s hands by criticising the Conservatives.

Mr Zahawi said: “Putin has worked out that he can use energy as a tool to hit back at us for the help we are putting into Ukraine. We have to be resilient. And we’re going to need to send a message back to Putin that this is not going to soften our resolve in helping Ukraine.”

Mr Zahawi said he had been working with Kwasi Kwarteng, the Business Secretary, on helping energy suppliers with loans so they have greater liquidity – a move he said could “put a downward pressure on the price cap by anywhere between £400 and £500”.

He said the idea, which has previously been rejected, was now “back on the table”.

Mr Zahawi said he had also drawn up a list of options to help businesses affected by high energy prices, such as hospitality, leisure and farming.

“If we don’t help those small and medium enterprises, my concern is the scarring effect, the longer-term scarring effect on the economy,” he said.

“So what we did on business rates, what we did on VAT for particular sectors like hospitality. So we’re working up all those options to look at those.

“And of course Liz Truss has talked about removing a moratorium on the green levies for a couple of years. We’re looking at that as well, which will help everyone with about £150.”

Asked about predictions that the price cap could rise by more than £6,600 in April, Mr Zahawi suggested the Government had not ruled out a freeze in the price cap at some stage.

“We haven’t ruled out anything,” he said. “Everything is still on the table.”

He added: “My concern about it is that it is universal. You’re helping wealthier households, households like mine, where we can withstand the additional pressure of high energy costs, and that takes away from your ability to be resilient over the long term.

“It would be about £100bn in about 18, 24 months. If I targeted that help, I’d be able to deliver more help to the most vulnerable. And of course, it allows me to help more SMEs, who are going to really need the help as well.”

On his ideas for a long-term energy strategy, he said: “If we’re going to effectively build a resilient energy system, nuclear has to play a big role in that.

“On gas, I feel the pendulum has swung too far. Certainly in the City, in that people were just not financing gas projects.”

To push fracking, he said: “The way you get successful fracking is if a local community feels that they can actually benefit from the upside of this gas production, and then they will back it.

“They did that very successfully in France with nuclear, so people living within a certain radius of a nuclear project get power to their homes for life.”

Mr Zahawi denied that the Tory leadership contest had paralysed the Government’s attempts to get to grips with the energy crisis, saying the Treasury “hasn’t stopped working”.

“They didn’t down tools because we had a political drama. I know Labour want to turn this into an argument, but that will be playing into Putin’s hands. Genuinely I say that, like on the pandemic.

“We’ve got to come together. The worst thing we can do is now turn this into a domestic political row versus actually coming together, being resilient and sending a message to Putin.”

Meanwhile, the head of the Federal Reserve told US families to expect “pain” as he rallied central bankers around the world to crack down further on inflation by raising interest rates.

Jerome Powell vowed to “forcefully” use all the Fed’s tools to tackle spiralling price rises in the US.

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