Economic Update

The UK’s economic recovery has been quicker and stronger than forecast. In the depths of the pandemic, our economy was expected to return to its pre-crisis level at the end of 2022; instead, it got there in November 2021, a full year earlier. Unemployment was expected to peak at nearly 12%; instead, it peaked at 5.2% and has now fallen to just over 4%, saving more than 2 million jobs. With the fastest-growing economy in the G7 this year, with over 400,000 more people on payrolls than before the pandemic, and with business investment rising, it is no wonder that borrowing is set to fall from £320 billion last year—the highest ever peacetime level—to just £46 billion by the end of this Parliament. As we emerge from the depths of the worst recession in 300 years, we should be proud of our economic record. The economy is stronger because of the plan we put in place, because of the actions we took to protect families and businesses, and that plan is working.

However, for all the progress we are making, the job is not yet done. I know that right now, the No. 1 issue on people’s minds is the rising cost of living. It is the independent Bank of England’s role to deliver low and stable inflation, and the Governor will set out its judgments at midday today. Just as the Government stood behind the British people through the pandemic, so we will help people deal with one of the biggest costs they now face: energy. The energy regulator Ofgem announced this morning that the energy price cap will rise in April to £1,971, an increase of £693 for the average household. Without Government action, this would be incredibly tough for millions of hard-working families, so the Government are going to step in to directly help people manage those extra costs.

Before I set out the steps we are taking, let me explain what is happening to energy prices and why. People’s energy bills are rising because it is more expensive for the companies that supply our energy to buy oil, coal and gas. Of the £693 increase in the April price cap, around 80% comes from wholesale energy prices. Over the past year, the price of gas alone has quadrupled, and because over 85% of homes in Britain are heated with a gas boiler and around 40% of our electricity comes from gas, this is hitting households hard. The reasons gas prices are soaring are global: across Europe and Asia, a long, cold winter last year depleted gas stores. Disruption to other energy sources, such as nuclear and wind, left us relying more than usual on gas during the summer months. Surging demand in the world’s manufacturing centres in Asia, at the same time that countries such as China are moving away from coal, is further increasing demand for gas, and concerns about a possible Russian incursion into Ukraine are putting further pressure on wholesale gas markets. So prices are rising.

The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies—so much so that some suppliers that could not afford to meet those extra costs have gone out of business as a result. It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we do not have to adjust to paying higher prices would be wrong and dishonest, but what we can do is take the sting out of a significant price shock for millions of families by making sure that the increase in prices is smaller initially and is spread over a longer period.

Without Government intervention, the increase in the price cap would leave the average household having to find an extra £693. The actions I am announcing today will provide, to the vast majority of households, just over half of that amount—£350. In total, the Government are going to help about 28 million households this year. Taken together, this is a plan to help with the cost of living worth about £9 billion.

We are delivering that support in three different ways. First, we will spread the worst of the extra costs of this year’s energy price shock over time. This year, all domestic electricity customers will receive an up-front discount on their bills worth £200. Energy suppliers will apply the discount on people’s bills from October, with the Government meeting the cost in full. That discount will automatically be repaid from people’s bills in equal £40 instalments over the next five years. This is the right way to support people while staying on track with our plans to repair the public finances.

Because we are taking a fiscally responsible approach, we can also provide more help faster to those who need it most—the second part of our plan. We are going to give people a £150 council tax rebate to help with the cost of energy in April, and this discount will not need to be repaid. I do want to be clear with the House that we are deliberately not just giving support to people on benefits. Lots of people on middle incomes are struggling right now too, so we have decided to provide the council tax rebate to households in bands A to D. This means that about 80% of all homes in England will benefit.

The third part of our plan will provide local authorities with a discretionary fund of nearly £150 million to help those lower-income households who happen to live in higher council tax properties, and households in bands A to D who are exempt from council at all.

We are also confirming today that we will go ahead with existing plans to expand eligibility for the warm home discount by almost a third, so that 3 million vulnerable households will now benefit from that scheme. That is not all we are doing to help vulnerable households. We are providing £3 billion over this Parliament to help more than half a million lower-income homes become more energy efficient, saving them on average £290 a year; increasing the national living wage to £9.50 an hour in April—a rise of over £1,000 for 2 million low-paid workers; and providing an effective tax cut for those on universal credit, allowing almost 2 million households to keep an average of £1,000 per year.

The payment through energy suppliers will apply across England, Wales and Scotland. Energy policy is devolved in Northern Ireland, with a different regulator, and the Government do not have the legal powers to intervene, but we will make sure that the Executive are funded to do something similar, with about £150 million for Northern Ireland through the Barnett formula next year. Because the council tax system is England-only, total Barnett consequentials of about £565 million will be provided to the devolved Administrations in the usual way.

I know that some in this House have argued for a cut in VAT on energy. However, that policy would disproportionately benefit wealthier households. There would be no guarantee that suppliers would pass on the discounts to all customers, and we should be honest with ourselves: this would become a permanent Government subsidy on everyone’s bills, a permanent subsidy worth £2.5 billion every year, at a time when we are trying to rebuild the public finances. Instead, our plan allows us to provide more generous support, faster, for those who need it most, providing 28 million households with at least £200, and the vast majority receiving £350. It is fair, it is targeted, it is proportionate: it is the right way to help people with a spike in energy costs.

Today’s announcements are just one part of the Government’s plan to tackle the country’s most pressing economic challenges. It is a plan for growth, with record investment in infrastructure, innovation and skills; a plan to restore the public finances, with debt falling by the end of this Parliament; a plan to cut waiting lists and back the NHS with £29 billion over three years, and with a permanent new source of funding; and, with the measures that I have announced today, a plan to help with the rising cost of energy, with £350 more in the pockets of tens of millions of hard-working families. That is our plan to build a stronger economy, not just today but for the long term, and I commend it to the House.

I thank the Chancellor for his statement.

We have known that this price rise was coming for months, and today we learn that the energy price cap will increase to £1,971 in April. In October, I called on the Government to provide immediate support for support for households, cutting VAT on their energy bills and saving £200, with £400 in extra targeted support for those who need it most, which would mean, for some of the poorest families in our country, almost no increase in energy bills from April. The Government have not done that today.

We all remember when the Prime Minister said that cutting VAT on energy bills was one of the benefits of Brexit. He said:

“When we Vote Leave, we will be able to scrap this unfair and damaging tax.”

Could there ever be a time when that policy is needed more than it is today? I should have thought that the Prime Minister, with his unblemished record of integrity, would defend the commitments he had made, but instead, that is another pledge thrown on to the bonfire of broken Tory promises.

The uncomfortable truth for the Chancellor is that even after what he has announced today, families in Britain—including some of the poorest—will still be paying hundreds of pounds more for their energy from April as a result of the breathtaking rise in energy prices just announced by Ofgem. Millions of people will be cutting back to pay the bills. Citizens Advice says that it saw a record number of people in January struggling with fuel debts, before the energy price increase. But what do the Government offer? A buy now, pay later scheme that loads up costs for tomorrow; high prices as far as the eye can see, this year, next year, and the year after that. It is a case of give with one hand now, and take it all back later with the other.

The Conservative party used to talk about the nation’s credit card. Today, we have seen the Chancellor force British households to load up their credit cards. By lending billions of pounds to energy companies, he is gambling that prices are going to fall, but they could go up further in October. What then? Billions more loaded on to people’s bills? The best way of targeting support to those who need it most would be an increase to £400 and an extension to 9 million households of the warm home discount, as Labour has proposed. The Government’s scheme is a pale imitation of Labour’s, especially for the households and pensioners on the most modest incomes, but the Chancellor is using council tax to target extra help. That will mean that many of the poorest households receive no extra support, while some of the richest do, and it is people living in the north and the midlands who will lose out most. The hypocrisy, the day after the publication of the Government’s levelling-up White Paper, is obvious. [Interruption.]

Order. Mr Holden, I think we need to be a little calmer. I am sure you will want to catch my eye, and that is not the way to do so.

Can the Chancellor confirm how many people who are fuel-poor will miss out on council tax support compared with the warm home discount support that Labour has announced?

The Government had a choice. Only today, Shell announced that its profits have quadrupled to $20 billion. It described its results as “momentous”—dividends up, profits up, and people’s energy bills up too. Labour’s plan would impose a one-off windfall tax on those excess profits, but this Chancellor would rather shield the oil and gas producers while at the same time loading the cost on to working people and pensioners. Cabinet Ministers have described the oil and gas producers as “struggling”. Tell that to the one in five people who are already skipping meals so they can pay their energy bills.

This energy crisis has not happened overnight. A decade of dither and delay from the Conservative party has brought us to this point: a decade of failure to regulate our energy markets; a decade in which they have slashed our gas storage capacity, leaving us more reliant than ever on Russia for our gas imports; a decade of failure to make the most of solar, tidal and wind energy; and a decade of stalled progress on insulating our homes to keep bills low, not just for one year but into the future. It has been the Tory decade that has led to this announcement of the biggest increase in the price of domestic energy since records began. That is what the Chancellor should acknowledge and apologise for today. The Conservatives are not solving the cost of living crisis, because the Conservatives are the cost of living crisis.

The Opposition may have some soundbites but they certainly do not have a policy. [Interruption.] In contrast, this Government have announced measures—[Interruption.]

Order. Mr Seely, is there something wrong with that wood you keep knocking, because I think it is in good order? You do not need to test for woodworm.

In contrast, this Government have announced measures to share the burden with consumers and help manage the global price rise. Despite the faux outrage from the Opposition Benches, I am sure that even they would admit privately that the support just announced is both generous and comprehensive.

Let me take some of the hon. Lady’s points in turn. First, on VAT, may I say how very welcome it is that the Opposition are recognising the benefits of Brexit? I hope they will join me in celebrating the fact that we have been able to change mass migration to this country after decades, that we can create new freeports in places such as Teesside, that we can sign new free trade deals, and that we can deregulate our economy to drive faster growth. She talked about VAT. VAT will, on average, be worth £90 to every household. We are providing £150 to those households that really need it and delivering that support quicker.

Secondly, the hon. Lady tried to claim that it was the Government’s responsibility to manage global gas prices. I outlined in my statement that it is very clear, as any person looking at this sensibly will acknowledge, that global factors are causing the increase in gas prices. No British Government or Chancellor can change what is happening in Asia or, indeed, stop a nuclear power plant going offline in Germany, and the hon. Lady should acknowledge that. Even in places such as Norway, electricity bills are rising because global factors are in play. She would do well to acknowledge that—and the right hon. Member for Doncaster North (Edward Miliband), sitting next to her, will know that, having spent a lot of time on this.

Thirdly, I want to address the point about our support for the most vulnerable, because I am proud of this Government’s record in supporting those who need our help. The policies we have announced today are progressive in their nature. A flat rate will, of course, mean far more to those on lower incomes or with lower energy bills. It is worth five times as much as a percentage of income for those on the lowest incomes as for those on the highest incomes. The hon. Lady talked about insulation. Over this Parliament, we are spending £3 billion to improve energy efficiency and insulation for over half a million households in fuel poverty. That is the right thing to do and it will save those vulnerable families, on average, £300 a year, not just this year but every year going forward. We have already announced those plans.

I welcome my right hon. Friend’s announcement today. Does he agree that a cut in VAT to solve this crisis is a completely flawed policy, as evidenced by the three economists who spoke to the Treasury Committee this week, including Torsten Bell from the Resolution Foundation, who wanted something far more targeted, such as what my right hon. Friend has announced today? It is clear that one factor in this crisis is Russia’s willingness to weaponise its gas supplies. Will he confirm that if there is any incursion into Ukraine, this country, with our international allies, will look at weaponising our banking system, which would be economically catastrophic for Russia?

I thank my hon. Friend for his question. On VAT, I have nothing further to add. He is right; what we are doing is more targeted, faster and more generous to those who need our help. With regard to sanctions on Russia, I can assure him that absolutely nothing is off the table. We are working closely with our international partners, as the Foreign Secretary has outlined, to prepare a very robust package of sanctions.

The Chancellor brags about having the fastest recovery, but that is actually wrong because Italy, for a start, has a higher growth rate. If the economy is doing so well, why is he still introducing a £12 billion tax on workers this financial year? Why has it taken to the last minute to try to do something about the cost of living crisis? Why is so much of this measure actually a loan that bill payers will have to pay back? He talks about not doing a VAT cut because he wants a more targeted approach. How is giving everybody a rebate a targeted approach? It is illogical.

The reality is that the Treasury is currently raking it in compared with where it thought it would be in the March 2021 Budget: an extra £3 billion this financial year and next year from oil and gas revenues; and VAT receipt predictions in October last year were nearly £40 billion higher than what they were in March 2021. That is a lot of money that the Treasury could be freeing up. Meanwhile, average energy bills increased this year to nearly £1,200, up from £700 the year before, bringing in an extra £0.6 billion in VAT. The VAT increase due to the cap rise will bring the Treasury another £0.8 billion a year, so there is much more money it could free up.

The Scottish Government are bringing in a £20-a-week child payment and uprating the child winter assistance payment. Could the Chancellor not look at doing something similar? Will he confirm that the council tax rebate proposal he is bringing in will have Barnett consequentials, how much they will be and that they will go to the Scottish Government? Will he look at devolving further budgets and powers so that Scotland can take a more targeted approach?

National Energy Action estimated that increasing the cap would put 6 million people into fuel poverty. With the Chancellor’s measures, what impact assessment have the Government done of how many households will be in fuel poverty? How many more premature deaths will there be because people are in fuel poverty? Lastly, the highlands of Scotland generate electricity and send it to the rest of the UK, yet electricity users in the highlands on the restricted meters pay 4p a unit more for electricity, or £400 more on their bills. When will the Treasury and the Department for Business, Energy and Industrial Strategy work with Ofgem to remove that ridiculous surcharge for ageing people in the highlands?

I am happy to confirm to the hon. Gentleman that the Barnett consequentials for Scotland will be around £290 million, which I hope he will welcome. My right hon. Friend the Chief Secretary to the Treasury will be speaking to Kate Forbes later today to go over the details, and I very much hope that the Scottish Government will choose to do something very similar to what we are doing, to the benefit of Scottish citizens. Of course, Scottish citizens will benefit from the rebate scheme on bills, because that is a Great Britain-wide policy, as I outlined.

With regard to the hon. Gentleman’s broader points on the North sea, there is a clear point of difference between us on the Government side of the House and the SNP. We believe in the future of the North sea, in the oil and gas industry, and in the 200,000 jobs it supports, and we want to ensure it plays an important part in our transition to net zero. I hope he can see that that is the right thing for Scotland and will join us in supporting that very important industry.

I thank my right hon. Friend for his excellent statement, and particularly for the thoughtful and progressive nature of the actions he plans to take. Does he agree that it is right to help not only the poorest, but those on middle incomes who are struggling with their household budgets?

My hon. Friend is absolutely right; I know that is something she is perhaps bringing up on behalf of her constituents. A price increase of this magnitude impacts almost everybody, and it is right that our response therefore helps almost everybody. That is what we are doing: ensuring that those families who are working hard on household incomes of £40,000 or so will still get £150-worth of support. Four out of every five households will benefit. We are on the side of hardworking families like those, and I make no apology for it.

I see we now have the Klarna Chancellor—“Get it now, pay later.” There is an important issue with council tax: in areas such as mine and other parts of London, there are not many people in those bands, and certainly not in bands A to C. Who will fund the council tax rebate? Will it be fully funded by the Exchequer, and will there be a weighting of the £150 million fund to areas such as mine, where there are poor households in high-value properties?

Just to confirm for the hon. Lady, it is council tax bands A to D, so it is four out of every five households across England. Obviously, that will vary by region. I can confirm that it will be fully Exchequer-funded and, on top of that, there will be a discretionary fund of around £150 million, for which the Department for Levelling Up, Housing and Communities will decide the best allocation formula. Local authorities will be able to use that to help those low-income households that happen to live in higher council tax band properties and those people, such as students, who are exempt from paying council tax at all, but whom we would want to get that support to.

Conservatives believe in holding taxes down and putting more money in people’s pockets so that they can decide how to spend it. Socialists believe in raising taxes and then choosing to give it back, in the form of discounts and rebates, to selected people who the Government think need them. Could the Chancellor explain his approach in increasing national insurance contributions and then handing money back to different people through rebates and discounts? Is that a Conservative approach, or is it a socialist approach?