Black Thursday with energy bills soaring 50% and interest rates ‘going up’

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Brits face a brutal Black Thursday today as it was revealed energy bills are set to soar by 54 per cent – as interest rates go up and wider inflation runs rampant.

In another hammer blow to already-struggling families, Ofgem has announced that the price cap on an average bill will rise £693 from April, to £1,971.

The Bank of England is also set to raise interest rates for the second month running at noon in a desperate bid to control rampant inflation, meaning higher mortgage payments for many homeowners.

Experts are warning the cost-of-living crisis could last years, with ministers hitting the panic button amid fears it will be even more toxic to the government than Partygate.

Rishi Sunak will finally step in today with a package to help households pay soaring power bills, which has been delayed by weeks of internal wrangling with Boris Johnson and the Cabinet.

Those in lower-band homes could get council tax rebates, and a system of government-backed loans for energy firms could help temporarily keep bills lower.   

But it will not fully offset the devastating energy price increases – particularly as millions are about to face a rise in national insurance, council tax and other household bills.

And there are complaints that Mr Sunak is merely delaying the pain, as the loans mechanism would mean bills staying higher for longer to avoid massive costs to the Treasury. 

Meanwhile, Labour has renewed its demand for a windfall tax on energy companies after Shell recorded an eye-watering £12billion profit in just three months. 

On a grim day for a country fighting to recover from the pandemic:   

Boris Johnson is vowing to press ahead with the controversial rise in national insurance in April despite the cost of living pressures;Official figures confirmed that rising energy, food and transport costs are swallowing up half the disposable income of the poorest;There are more optimistic signs for the economy as the closely-watched IHS Markit/CIPS UK Services PMI survey scored 54.1 in January, with the Omicron wave easing. Anything above 50 represents growth; The CBI has warned that Britain is caught in a ‘trap’ of low growth and high taxes and it is likely to be a ‘bumpy decade’ with costs unlikely to reduce for years;Defence chief Sir Tony Radakin warned ministers that a Russian invasion of Ukraine would drive prices even higher.

After Ofgem announces the new cap level this morning, Mr Sunak is set to make a statement in the Commons and hold a press conference this evening. 

The government is likely to give millions of homeowners rebates on their council tax bills worth hundreds of pounds to limit the impact of the energy price surge. 

People in council tax bands A to C could receive rebates funded by government grants, which could benefit up to 15million households.

Sources suggested that other options to slash bills, including scrapping VAT on fuel and cutting green levies, had been rejected – a decision that is likely to anger some Tory MPs.

But a Treasury source last night said the Chancellor would acknowledge that the scale of the increase in the cost of living was beyond what the Government could offset. 

‘We cannot cover the entire cost,’ the source said. ‘We just have to make sure the help we give is as well targeted as we can.’

And CBI chief Tony Danker said there was set to be two or three years of ‘very high energy bills’.

‘My question is really whether or not the economy is going to grow fast enough after this year for everybody to have the wage growth they need to cope with higher bills,’ he told Sky News.

‘Let’s see the detail. But I think this is a much more profound problem: how is Britain going to grow its economy and grow wages. The government’s in a tough spot.’

Shadow Treasury chief secretary Pat McFadden warned that households are facing a ‘triple whammy’ of rising energy bills, tax hikes and wages failing to keep pace with inflation.

He told Sky News: ‘People are really worried about this, they don’t know how they are going to pay.

‘Even before these rises have been announced, people have been so fearful they have been turning their heating off.’

Mr McFadden added: ‘This is just one part of a triple whammy that’s coming at households right now – you’ve got the energy price rises which we are talking about today, you’ve also got tax rises coming in April, you’ve got declining real wages.

‘These three things are coming together to squeeze household incomes in a way that we haven’t seen for many, many years.’

Mr McFadden said Mr Sunak’s plan was ‘buy now, pay later’ for consumers, and said Shell’s profits demonstrated the wisdom of a windfall tax. 

‘They are planning share buybacks and increased dividends but they are not being asked to pay a penny towards the package,’ he told Sky News.

Taking aim at Chancellor Rishi Sunak, Mr McFadden said: ‘He is not asking the oil and gas companies – who are making the most out of this – to pay a single penny towards this.

‘Instead he is doing it on a buy now, pay later way.’

Foreign Office minister James Cleverly said the crisis in Ukraine was partly to blame for soaring energy bills.

Mr Cleverly told Times Radio: ‘The situation in Ukraine has played a part in what has been a global increase in wholesale gas prices and that’s had a knock on effect through the supply chain right through to the energy companies in the UK and ultimately to people’s bills.’

He said the Government already had targeted support in place for pensioners and lower-income families and had increased the minimum wage.

Meanwhile, a debt management charity said it has been ‘inundated’ with inquiries from people choosing between ‘heating and eating’.

Sylvia Simpson, project director at Leeds charity Money Buddies, told BBC Radio 4’s Today programme that the charity is even seeing people with incomes struggling to pay their bills.

She said: ‘We see it in clients coming to us every day, we are inundated with people coming to see us.

‘We had one recently where she was choosing between heating her home or eating a warm microwave meal as she turned the fire off to turn the microwave on.

‘Lots of people are coming in with different inquiries relating to their budgets and how they can manage and it’s not just the poorest of people as well.

‘We’re getting nurses, you know people that have an income as well, but are faced with that choice of whether to heat or eat.’

The first move today will come from energy regulator Ofgem, which is expected to announce that the energy price cap will soar from £1,277 to more than £1,900 for the average household – a staggering increase of more than 50 per cent.

Families with larger properties risk even bigger hikes – with some facing an increase of as much as £1,500.

Analysts warn that, on current trends, the price cap will rise again in October to around £2,300.

At noon, the Bank of England is set to raise interest rates for the second time in two months, with the base rate increasing to 0.5 per cent – the highest level since March 2020.

Bank of England governor Andrew Bailey is expected to warn that the increase is needed to curb inflation, which rose to 5.4 per cent last month – the highest level for 30 years. Analysts fear further rate rises will follow.

Mr Sunak will respond with his plans, while issuing a warning on the dangers of inflation and a vow to bring public spending under control. He is then expected to give a press conference in Downing Street in the afternoon.

Today’s package is likely to be less generous than it first seems. The £200 rebate will be funded by government loans to the energy firms worth around £6billion.

Firms will be required to pass on the cash directly to consumers in the form of a rebate.

But the suppliers will have to repay the money in later years via a ‘clawback’ levy on bills, meaning consumers will ultimately return the money they receive this year.

The industry, which proposed the scheme, had initially asked for £20billion in order to spread the entire cost of the price spike over a period of years.

But, with prices forecast to remain high for at least two years, the Treasury was unwilling to set a precedent of artificially freezing bills at an unknowable cost to the taxpayer.

The second strand of assistance will be targeted at millions of families on means-tested benefits and will not be recouped by the Treasury. Industry sources suggested this could provide an extra £300 to poorer families. The cost to the Treasury would be £2-£3 billion.

Ministers have discussed a range of options for distributing the cash, including using the existing Warm Homes Discount Scheme, which is worth £140 a year, making Universal Credit more generous, or giving a council tax rebate to homes in bands A to C. The Treasury declined to say which option the Chancellor had chosen.

A series of independent surveys has found widespread evidence of families having to choose between heating and eating.

The Resolution Foundation think-tank warned that April looks set to be a ‘cost of living catastrophe as energy bills and taxes rise steeply overnight’.

The hardship comes at a time when oil and gas giants, such as BP and Shell, are making billions from the global spike in gas prices. This has sparked calls from Labour for a windfall tax.

Research by Age UK suggests older people who are struggling with the cost of heating will need at least £500 in support to stay warm and keep the lights on.

Spokesman Caroline Abrahams said: ‘The number of older people who are worried about being able to heat their homes is staggering and should be a source of shame for this Government.

‘Millions of older people across the UK are absolutely dreading the imminent price cap announcement.

‘Every single day we are hearing heart-breaking stories from desperate older people who are being forced to choose between heating and eating. This isn’t a looming crisis, it’s already upon us. Millions of older people are suffering.’ 

Homeowners are braced for rate rise shock as mortgage increases could add to cost of living squeeze

Millions of homeowners face punishing mortgage bill hikes if interest rates rise to 0.5 per cent today as expected.

Analysts said an increase in the base rate was ‘all but inked in’ as the Bank of England comes under pressure to rein in soaring inflation.

This would be the second rise in just seven weeks, after the base rate edged up from a record low of 0.1 per cent to 0.25 per cent in December.

The analysts warned this could just be the start, with markets now predicting a level of 1.5 per cent by the end of the year – the highest in more than a decade.

About two million borrowers with variable rate mortgages would be affected almost immediately by any rise.

If the base rate increases to 0.5 per cent, it would cost borrowers with a typical £150,000 loan an extra £21 a month, or £252 a year, according to figures from broker L&C.

At 1.25 per cent, they would pay an extra £84 a month or £1,008 a year. And if it rose to 1.5 per cent, they would pay £106 more each month or £1,272 a year.

Borrowers with larger loans will be hit even harder by rate rises.

Someone with a £450,000 mortgage would pay an extra £744 a year at 0.5 per cent, and £3,804 more at 1.5 per cent.

Any increase in mortgage bills would be a major blow for households already facing soaring energy bills and tax hikes in April.

An estimated ten million people have never seen base rate rise above 1 per cent in their adult lives, according to investment firm AJ Bell.

Those with fixed mortgage deals will not see any increase in their repayments until the term ends.

But fixed loans for new buyers are getting more expensive as lenders price in expected rate rises.

With rates still very low by historic standards, experts urged borrowers to lock in now to protect themselves from bill shocks later down the line.

David Hollingworth of L&C said: ‘Although mortgage rates have been on the rise in recent months there are still highly competitive fixed rates on offer.

‘These can help homeowners shelter their mortgage payments from further rises and control their biggest outgoing when other costs are climbing. But the best deals won’t hang around for ever.’

AJ Bell said the markets were pricing in a 95 per cent chance of an interest rate rise to 0.5 per cent today.

Spokesman Laith Khalaf said: ‘A rate rise at the Bank’s February meeting is all but inked in, which, if realised, would be the first time since 2004 that the bank has raised interest rates in two consecutive meetings.

‘But this wouldn’t be the first time markets have got ahead of themselves.’