Middle earners face new squeeze as Chancellor plots energy ‘social tariffs’

MIDDLE earners face a fresh income squeeze as the Government examines plans for “social tariffs” that would see the energy bills of vulnerable households subsidised through levies on bills paid by the better off.

The Government plans to “develop a new approach to consumer protection in energy, including options such as social tariffs”, documents published alongside the Chancellor’s Autumn Statement show.

Social tariffs would mean the energy bills of low earners are capped at a certain level, with the policy paid for either through general taxation or by a charge on the bills of higher earners.

The proposal is being looked at as part of Jeremy Hunt’s plan to replace a blanket cap on energy bills that will average £2,500 a year this winter.

Economists warned that social tariffs risked dragging millions more households who do not qualify for benefits into fuel poverty by excluding them from support.

It comes amid a backlash to Mr Hunt’s economic policies from Tory MPs, who have warned that a tax grab will stifle growth and lead to the Tories being wiped out in the next election.

Changing the way energy support is delivered could add hundreds of pounds a year to the bill of an average middle-class household if social tariffs are adopted and paid for through a levy added to other bill payers.

The energy price cap is already set to rise to an average of £3,000 from April, Mr Hunt has said.

Martin Young, senior energy analyst at Investec, said it was not fair to force middle earners to shoulder the burden of higher bills. “You don’t want to push hard-working people into a position where they have to make unpalatable choices,” he added.

“We’re in an environment where bills are unaffordable for many people, are a big stretch for a lot more people and probably only affordable to a small part of the population.”

Middle-class workers are already set to bear the brunt of Mr Hunt’s tax rises in the Autumn Statement.

His decision to protect pensioners and welfare claimants while taxing workers and businesses is expected to push the tax burden to a record high and swell the size of the state to proportions not seen since the 1970s, according to official estimates.

British households already subsidise some of the most vulnerable through extra charge on their energy bills.

The Government estimates that the Warm Home Discount, which gives about 2.8 million pensioner and lowincome households a £150 cut on their electricity bill, will add about £19 to the typical dual fuel energy bill this winter.

Social tariffs would add even more money to the average bill.

The Resolution Foundation has calculated that a social tariff that hands 7.3 million households in receipt of means-tested benefits a 30 per cent bill reduction would cost around £6billion.

The think tank warned of the consequences of only directing support to those on benefits.

“A social tariff for those receiving means-tested benefits would improve the targeting of energy needs over flatrate payments, and remain highly progressive. But it would retain the problem of an acute cliff edge, based on whether you qualify for any benefits or not,” it said in a recent report.

Social tariffs are one of a number of options being considered by the Government as it looks at reforming energy support from next April.

A Treasury spokesman declined to comment.

‘You don’t want to push hard-working people into a position where they have to make unpalatable choices’