How the government can support people hardest hit by energy price rises

It is a tough one, but the government has to do it. It must find more effective ways to support the people hardest hit by the surge in energy prices, for so far it is not doing very well. There is obvious political pressure to take action, as the prime minister has just discovered but there also should be moral pressure. Governments cannot fix everything, but there are things they can do to help vulnerable people in an emergency. This is an emergency.

If you look around Europe, the various governments have taken different approaches to tackle the energy crisis. The Bruegel think tank in Brussels keeps a good tally of what is being done here. Some have focussed on cutting energy taxation and/or directly regulating prices. A few have given instructions to state-owned energy providers, while others have levied higher taxation on private companies. Businesses that use a lot of power have also been helped. But the most universal way of helping people has been to make transfers to the most vulnerable. That includes the UK – indeed the only countries in Europe that are not making such transfers are Bulgaria and Hungary.

So the encouraging message is that there are a variety of things that can be done and countries can learn from each other the most effective ways of dealing with the crisis. The less encouraging message is that the UK may not have been as effective as it could be, even though it is much less reliant on oil and gas from Russia that the rest of Europe, and so on the face it, less impacted by the dreadful events that are happening in Ukraine.

So what can the UK learn? There is one immediate issue. Should it levy a windfall tax on the oil companies that have benefitted from the higher oil price? BP is in the firing line here, having just produced the highest underlying profits for a decade, though its loss on its stake in the Russian corporation Rosneft meant that it declared an overall loss.

My own view is that this is really a political decision, rather than an economic one, because the amounts that a windfall tax would raise would be quite small in relation to the scale of the problem. Government revenues overall are very strong at the moment, and though there is still a huge deficit, that is coming down fast. But taxing the energy companies is easily done, for they are an attractive political target and we may see that happen.

The harder thing is to make sure that the right people are helped. Cutting VAT on domestic energy is something that is administratively simple and straightforward, but do you want to cut the cost of heating the swimming pools of the one per cent club? In Germany, where electricity prices are among the highest in the EU, they have cut the green energy surcharge, and there is pressure to cut it further. But that sends a signal that you may not want to give, by focusing on the extent to which going green has increased energy bills.

There are, however, several reasonably well-targeted things that the government could do. One would be to use the winter fuel payment as a template to help older people. There will be people who do not need the money, for thanks to the rising property prices, wealth in the UK is skewed towards the elderly. But even people in expensive homes may have cash flow problems.

For families with children, there are free school meal schemes for the different countries of the union. That could give a path for help with energy bills targeted at young families that for whatever reason, are not getting the assistance they need. The Citizens Advice network has a guide to the various benefits available. And there is the government’s energy bills support scheme which could be developed much further.

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I think we have to acknowledge that there will be some leakage, in the sense that however you design a system of benefits there will be some people who can claim who don’t really need them. But we should not let the best become the enemy of the good enough, particularly in an emergency.

But probably the best source of information about the struggle households are having to pay their bills comes from the energy suppliers themselves. They know who has paid promptly and who appears to have difficulties. And they all have schemes designed to tide people over. It is not in the self-interest of an energy supplier to lose a customer. Ofgem explains here how people should seek help if their supplier seems to be failing to provide assistance. There is an obvious path here for further government support.

The bottom line in all this is that the energy situation will get worse before it gets better. The autumn will see another hump in energy costs. Eventually, prices will subside, but we have to get over that hump. Governments cannot do much about the global energy situation, but they can protect people from its worst effects – and the UK authorities must do so than they have to date.