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Bloomberg News

Bloomberg News

Alex Morales and Rachel Morison

(Bloomberg) — Prime Minister Boris Johnson’s government is considering whether to double the amount of money it lends to U.K. households grappling with surging energy bills and then ease the requirements for paying that back.

Options put to Johnson by Business Secretary Kwasi Kwarteng include raising that loan to 400 pounds ($525) or more, delaying the repayment schedule and exempting poorer households from at least some installments, according to a person familiar with the matter. The measures would take effect in October, the person said, asking not to be identified because the discussions aren’t public.

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Pressure is mounting on Johnson and Chancellor of the Exchequer Rishi Sunak to stave off a squeeze on living costs that’s set to hit British households next month when payroll taxes and the cap on energy prices rise. Inflation hit 5.5% in January, a three-decade high, and Bloomberg economists say it could reach 10% later this year because of the war in Ukraine.

“Russia’s devastating invasion of Ukraine will have a huge impact on lives and livelihoods around the world, and the effects will be felt across this country,” the Treasury said in a statement. “We will continue to monitor the economic impact of the conflict.”

The energy price cap is set to jump 54% in April to 1,971 pounds per household. Forecasts for the next adjustment in October see a further 83% leap to 3,600 pounds, an amount many would struggle to afford.

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U.K. gas prices reached a record 800 pence a therm this week on fears that Russia could cut off supplies to Europe. The price-cap estimate by Aurora Energy Research Ltd. assumes a lower average price for gas, but with wholesale costs making up 70% of the bill, homes will suffer a direct hit.

Also coming next month is a 1.25 percentage-point increase in payroll taxes meant to pay for social care and help Britain’s National Health Service clear its backlog.

The new proposals come after Sunak outlined measures last month in a 9 billion-pound plan. In addition to the 200-pound rebate that would be repaid over five years, he announced a 150-pound council tax rebate for 80% of the homes in England, starting in April, and 144 million pounds of discretionary grants to be paid out by local authorities.

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Sunak is set to deliver a speech March 23 on the state of the economy, and that provides an opportunity to unveil fresh help for consumers.

U.K. Businesses Press Sunak for Aid to Cope With Fuel Price Jump

The opposition Labour Party’s spokesman on climate change, Ed Miliband, called Thursday for a “national sprint” to ramp up domestic nuclear power and renewables, and insulate homes to drive down dependence on foreign energy sources.

Labour has proposed a one-time windfall tax on oil and gas producers, with the proceeds, along with a cut in the value-added tax, funding a 600-pound reduction in household energy costs. That’s 50% higher than the Kwarteng proposal.

Energy companies are renewing their calls to take the 5% VAT cost off energy bills, which was left out of Sunak’s package. Removing VAT and the environmental costs added onto bills could save 250 pounds, according to Michael Lewis, chief executive officer of EON U.K. Plc.

The pressure to abate living costs also comes from within Johnson’s ruling Conservative Party. In the House of Commons on Wednesday, lawmaker Robert Halfon asked Kwarteng to consider a tax rebate on fuel sold to motorists in gas stations.

Kwarteng’s proposals were first reported by Politico.

©2022 Bloomberg L.P.

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