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

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Britons face Black Thursday today with energy bills and mortgage rates set to soar, as Rishi Sunak finally unveiled a £9billion cost-of-living crisis package – but admitted it will hardly make a dent in the pain for families.

The Chancellor announced new help in the Commons minutes after it was revealed the energy price cap is going up 54 per cent for millions of people in April, meaning typical costs will rise £693 to £1,971. 

And as he spoke, the Bank of England pushed interest rates to 0.5 per cent to control rampant inflation.

Ofgem’s price cap on an Mr Sunak said A-D band homes will get £150 council tax rebates, while £200 government-backed discounts will help temporarily keep electricity bills lower for everyone – but must be repaid over five years.

There will also be a £150million ‘discretionary fund’ for local authorities to distribute to worse-off families. 

But Mr Sunak conceded it would be ‘wrong and dishonest’ to claim that he can take away all the pain, pointing to soaring global gas costs. 

He said the ‘vast majority’ of households would see a £350 benefit – but that is less than half the average energy cap increase. 

‘Without Government action, this could be incredibly tough for millions of hardworking families. So the Government is going to step in to directly help people manage those extra costs,’ Mr Sunak said. 

The policy has been delayed by weeks of internal wrangling with Boris Johnson and the Cabinet, after many ministers pushed for the £12billion national insurance raid to be delayed or axed.

Mr Sunak said: ‘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.’

Labour accused Mr Sunak of a ‘buy now pay later’ approach, arguing he is merely delaying the pain.

The Bank of England is 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.

Mr Sunak told MPs: ‘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 who 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 don’t 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 the increase in prices is smaller initially and spread over a longer period.’

He added: ‘Without Government intervention the increase in the price cap would leave the average household having to find an extra £693, the actions I’m announcing today will provide to the vast majority of households just over half of that amount, £350.’ 

The Ofgem move is likely to impact 22million households across Great Britain, and applies to those who are on their energy supplier’s default tariff.

‘We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can,’ the watchdog’s chief executive Jonathan Brearley said.

‘The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.’ 

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;Inflation in the OECD area rose to 6.6 per cent in the 12 months to December 2021, the highest rate since July 1991, as countries around the globe grapple with the issue;  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.’ 

YOU are £2,853 worse off thanks to post-Covid cost of living crisis: How ‘Black Thursday’ increase to energy cap and interest rates adds to inflation that is making millions of Brits poorer 

Britons will endure a double whammy of large increases in the cost of living today with the energy price cap soaring by nearly £700 and interest rates set to go up to 0.5 per cent in the second rise in just seven weeks.

National Insurance is set to increase by 1.25 percentage points in April; petrol prices are up by more than a quarter in a year; and council tax is expected to rise by an average of 3 per cent for the forthcoming year.

An average household will spent £139 a year more on food in 2022, clothing and footwear costs are up by an extra £51 a year; while families will spend an extra £136 on household goods due to soaring inflation.

As today was dubbed ‘Black Thursday’ by analysts due to the multiple rises, this is how the increases in the cost of living will impact the average family – with the total rise set to be £2,853: 

FUEL BILL: £693

Energy regulator Ofgem announced this morning that the energy price cap will soar from £1,277 to more than £1,971 for the average household – a staggering increase of about £693 or 54 per cent. 

Families with larger properties risk even bigger hikes – with some facing an increase of as much as £1,500. Analysts have warned that, on current trends, the price cap will rise again in October to around £2,300.

Wholesale gas and electricity prices have soared since last August, but consumers are protected from even bigger rises by fixed-rate terms and by this price cap.   

MORTGAGE: £552

Millions of homeowners face punishing mortgage bill hikes if interest rates rise to 0.5 per cent today as expected. It would be the second rise in seven weeks, after edging up from 0.1 per cent to 0.25 per cent in December.

If you have just bought a property for the UK average of £276,000 and have an 80 per cent loan on a tracker rate, a 0.25 percentage point rise in mortgage rates to 0.5 per cent would mean extra repayments of £552 per year. 

About two million borrowers with variable rate mortgages would be affected almost immediately by any rise -and markets now predict a level of 1.5 per cent by the end of the year, the highest in more than a decade. 

NATIONAL INSURANCE: £254

In April, national insurance rates will increase by 1.25 percentage points. That means an extra 1.25 per cent of all your earnings over the primary NI threshold of £9,568, which is an extra £254 per year for those earning £35,000.

The controversial hike, which is being implemented to cover the shortfall in social care funding and help clear NHS backlogs, also means someone on a salary of £50,000 would see their contributions go up by £404. 

COUNCIL TAX: £40

Councils have yet to set their council tax rates for the forthcoming year (most do in March), but according to the Institute of Fiscal Studies, many are likely to push up rates by close to the maximum that the Government allows.

This figure is 2 per cent plus a further 1 per cent in the case of councils which provide social care. Assuming an typical 2.8 per cent rise, this would push up average bills by £40 next year.

RUNNING A CAR: £717

Petrol and diesel are up by 26.8 per cent in a year. Given that the average household spends £22.30 per week on fuel, that means an extra £5.98 a week, or £311 a year.

Second-hand car prices have rocketed even more – by 28.6 per cent. That’s a jump of £391 in the annualised cost of buying a car. Then there is servicing and repairs, which with inflation at 4.5 per cent means an extra £15 a year.

BUS AND TRAIN FARES: £67

Think you can ditch the car to escape the price rises? Forget it: Bus and train fares are up 5.9 per cent in a year. Given that the average household spends £21.70 a week on them, that’s another £1.28 a week: £67 per year. 

TAX BAND FREEZE: £136

This is how economists describe how the Government is cunningly extracting extra money by failing to increase tax thresholds with inflation. The personal tax allowance – the rate before which you pay any income tax – is currently £12,570. 

If this increased with the Consumer Prices Index, as you would normally expect it to, it would rise to £13,248 this year. That means that a median earner will be paying 20 per cent income tax on the difference of £678 a year – an extra £136 a year.

FOOD AND DRINK: £165

According to the Office of National Statistics (ONS), the average household spends £63.70 a week on food. Annual inflation in food is 4.2 per cent, meaning an average household will be spending an extra £2.67 a week – or £139 per year in 2022. Booze prices are rising at 3.9 per cent: that’s another £26 per year extra.

CLOTHING AND FOOTWEAR: £51

The average family spends £23.40 per week on clothing and shoes. As with food, the inflation rate in these items is 4.2 per cent. That’s an extra £51 per year.

HOUSEHOLD GOODS AND HEALTH PRODUCTS: £178

According to the ONS, an average household spends £36.50 per week on these. With an inflation rate at a terrifying 7.3 per cent, that’s an extra £136 a year. We also spend £8.20 a week on health and wellbeing products, which are rising at 2.2 per cent per year – another £42 over the 12 months.

TOTAL: £2,853

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.’