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21st January 2022
05:04pm GMT
Sunak is reportedly looking at a range of options/Via Getty[/caption]
The chancellor is reportedly concerned that slashing VAT on energy bills would simply aid richer households who do not need the help. However this new scheme would specifically target the poorest and thinktank The Social Market Foundation (SMF) has backed the idea.
SMF's chief economist, Dr Aveek Bhattacharya, said giving a one-off payment of up to £500 would be the best response, as it allows families to spend the money as needed. SMF recommended that households without a higher-rate taxpayer should get £300 but families on Universal Credit or legacy benefits should get £200.
"The coming cost of living crisis leaves millions of households facing severe hardship, and many millions more feeling significant pressure on their finances," Dr Bhattacharya said.
"It is clear that some action is needed, but the Government should avoid the temptation to over-complicate its response and muddle its environmental objectives by subsidising energy."
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Sunak and Johnson are currently in talks with energy chiefs/Via Getty[/caption]
He continued: "Instead, it should make direct cash payments to households and leave them to figure out how best to address their needs.
"A 'cost of living bonus', with a higher payment for those on low incomes, would do a lot to help struggling families and clearly demonstrate that the Government is on their side."
Other ideas that have been suggested include granting loans to energy companies and cutting VAT on fuel bills.
While cutting VAT is seemingly the most popular option in the public sphere, Dr Bhattacharya suggests that focusing only on this issue means other areas lose out.
He said: "These options are also somewhat limited in their flexibility to address other elements of the cost-of-living crisis."
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