New measures to help with the cost-of-living crisis
26/05/2022

As expected, the Chancellor, Rishi Sunak has announced a new package of support measures in a statement to the House of Commons on 26 May 2022. The measures will be targeted to the most vulnerable members of society in a total package of measures that we are told will cost £15bn and bring the total cost of living support to £37 billion this year.

This means that, including measures already announced, all of the eight million most vulnerable households in the country will get £1,200 of one-off support in total this year to help with the cost of living.

The main measures announced by the Chancellor on 26 May 2022 are as follows:

Energy Bills Support Scheme doubled to a one-off £400.

Back in February, the Chancellor announced a number of measures to help people cope with fast rising energy costs. This included a £200 universal discount on energy bills for domestic electricity customers, with a clause that the money would need to be paid back in the future. The situation has worsened since then and the Chancellor acknowledged this in his latest statement.

We have already seen record increases in fuel bills from 1 April 2022 affecting some 22 million customers across the UK. This means the average consumer paying by direct debit has seen an annual increase of £693 from £1,277 to £1,971 per year with those paying by prepayment facing even higher costs. The price cap is updated twice a year and the head of OFGEM has suggested that the price cap could increase again to around £2,800 in October 2022.

This has prompted the Chancellor to change tack and announce a doubling of the Energy Bills Support Scheme to £400 and to cancel the repayment schedule. This means that the support will now be provided in the form of a non-repayable grant.

This support will apply directly for households in England, Scotland, and Wales with the government delivering equivalent support to households in Northern Ireland.

£650 one-off Cost of Living Payment for those on means tested benefits

The Chancellor also stressed that he was seeking to provide help to the most vulnerable people across the UK. One of these measures will help the 8 million households in receipt of mean tested benefits. These households will receive a payment of £650 this year. The DWP will make the payment in 2 lump sums. The first payment in July and the second at an as yet unspecified date in the autumn. Payments from HMRC for those on tax credits only will follow shortly after each to avoid duplicate payments.

HMRC and DWP will provide further guidance, and the government will set out the eligibility date for the second instalment, in due course. It has been confirmed that the payment will be tax-free, will not count towards the benefit cap, and will not have any impact on existing benefit awards.

One-off £300 Pensioner Cost of Living Payment

An additional one-off payment of £300 will also go to the over 8 million pensioner households across the UK who receive the Winter Fuel Payment. This amount will be paid in addition to any other one-off support a pensioner household is entitled to.

The Winter Fuel Payment is not taxable and does not affect eligibility for other benefits. The government will make these payments directly to households across the UK. This money will be paid out as top-up to pensioner households annual Winter Fuel Payment in November / December.

£150 Disability Cost of Living Payment

The Chancellor also announced a non-means tested one off disability payment of £150 to some six million people across the UK who receive the following disability benefits:

  • Disability Living Allowance
  • Personal Independence Payment
  • Attendance Allowance
  • Scottish Disability Benefits
  • Armed Forces Independence Payment
  • Constant Attendance Allowance
  • War Pension Mobility Supplement

Many of these recipients also receive means tested benefits which means this £150 of assistance will be on top of the £650 payment for those receiving means tested benefits.

£500m increase and extension of Household Support Fund

The Chancellor also announced an extra £500 million of local support via the Household Support Fund for vulnerable households that might not receive some of the other support measures. The Household Support Fund will be used to help those most in need with discretionary support. This could include using small grants to meet daily needs such as food, clothing, and utilities. The extra support will see the Fund extended from this October to March 2023.

Energy Profits Levy

The cost of these measures will be in part paid for by the introduction of a new temporary Energy Profits Levy on oil and gas firms. Whilst the Chancellor was at pains not to refer to this Levy as a windfall tax, this is basically what is being introduced. This Levy will target firms in the sector making enormous profits because of the spike in commodity prices.

This new Levy is expected to raise around £5 billion over the next year and will be charged at a rate of 25%. The Energy Profits Levy will apply to profits arising on or after 26 May 2022. This will increase the headline rate of tax on oil and gas firm profits from 40% (made up of a 30% Ring Fence Corporation Tax and 10% Supplementary Charge) to 65%.

To help offset some of the impact on these firms, the Chancellor also announced the introduction of a new Investment Allowance to encourage firms to invest in oil and gas extraction in the UK. The Chancellor also referred to the introduction of the Levy as temporary and said that if oil and gas prices return to historically more normal levels, the Levy will be phased out. In addition, the legislation will also include a sunset clause, which will remove the tax after 31 December 2025.

The new Investment Allowance is similar in style to the super-deduction and will nearly double the tax relief available for firms on their investments. The new allowance will mean businesses will receive an overall 91p tax saving for every £1 they invest.


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