London (Reuters) -But Steve Barclay, a minister in the Cabinet Office, said on Thursday that Britain must find a way to pay for more help for households that doesn’t discourage investment. He was speaking before a new plan to deal with rising energy bills was expected to be announced.
Finance minister Rishi Sunak will give a statement to parliament about how the government will help taxpayers deal with what opponents and activists have called a “cost of living crisis.” He will do this because he is under a lot of political pressure to do so.
Barclay told Sky News, “When we look at how to pay for that, we need to find a balance between how much we borrow and how much we raise in taxes in a way that doesn’t scare away investment.”
A source in the energy industry said that Sunak’s announcement will likely include a $12.6 billion ($10 billion) package of help, which will be paid for in part by a windfall tax on oil and gas producers.
Barclay said that the government decided to act after the energy regulator said earlier this week that gas and electricity bills would go up by another 40% in October.
Barclay told the BBC, “What we do agree on is that the government needs to provide targeted help, especially for those whose bills are going up the most.”
Last year, when the world’s economies reopened after being shut down because of a pandemic, demand went up sharply and supply couldn’t keep up. This caused gas prices to go up around the world. In 2022, prices will have gone up even more because of the war in Ukraine.
The government has said in the past that it doesn’t want energy companies to pay a windfall tax because it would stop them from investing in new energy projects.
But that has changed as political pressure to do something has grown. With the highest inflation rate among the G7 countries and rising bills, many people’s budgets are already stretched to the limit.
Boris Johnson, the Prime Minister, also wants to move the conversation away from a bad report about illegal lockdown parties at his Downing Street office.
The Labour Party, which is in opposition, has been pushing for a windfall tax on oil and gas companies to raise about 2 billion pounds ($2.5 billion). Opinion polls show that most people agree with this idea.
When asked about the Labour plan for a windfall tax, Barclay said he didn’t agree with it, but he wouldn’t say anything else about the government’s new plan, saying Sunak would explain it to parliament later.
Sunak will probably talk at around 11:15 GMT.
INFLATION RISK
In April, inflation reached a 40-year high of 9% and is expected to rise further. Last month, the government said that living standards were going to drop the most since records started in the late 1950s.
In February, the government announced a 9 billion pound support package. It included a targeted tax rebate of 150 pounds per year for 80% of English households and a 200-pound discount on electricity bills that would be paid back over five years.
According to the news, Sunak’s package could have a bigger discount and less need to be paid back.
The Institute for Fiscal Studies (IFS), an economic think tank, said that any help should go to the poorest households and that giving money to everyone, even those who don’t need it, could make inflation worse.
IFS director Paul Johnson told BBC radio, “We do need to be careful.” “Putting tens of billions of dollars into the economy when inflation is high could increase demand and make inflation last longer.”
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