Rising energy costs have become one of the biggest concerns for households across the UK, with many families facing difficult choices as everyday expenses continue to increase. The pressure is pushing the government to consider new ways of protecting the most vulnerable households before another rise in bills expected next year.
Government Reviews Support Options Before Energy Price Increases
Chancellor John Healey has asked officials to examine ways to protect households from rising energy costs, according to reports from The Times.
Forecasts suggest energy bills could increase sharply next year. Cornwall Insight has estimated that annual bills could reach around £1,872 in January, while Bloomberg Economics has predicted a possible 25% rise, which would add approximately £427 per year to household costs.
From October 1, energy bills are expected to rise by 4% to £1,723, adding around £60 annually for many households. The possible support measures are being considered as the government faces pressure to respond to higher living costs while managing public finances.
Existing Measures Face Pressure From Rising Energy Costs
The government has already introduced changes aimed at reducing household energy expenses. From October 1, VAT on domestic energy bills was removed, a measure expected to save households around £45 per year.
However, these savings could be offset by higher wholesale energy prices linked to international events. Disruptions affecting shipping through the Strait of Hormuz have contributed to pressure on oil and gas markets.
Ministers may consider extending the VAT reduction beyond March, although no decision has been confirmed. Another existing measure, the Warm Home Discount, provides a £150 reduction on energy bills for nearly six million households receiving eligible means-tested benefits.
Inflation Concerns Add Pressure on Government Decisions
Energy prices are also being monitored because of their effect on inflation. Clare Lombardelli, deputy governor of the Bank of England, warned that continued high energy prices could create additional inflation pressure. She said prolonged increases could affect inflation expectations, wage negotiations and pricing decisions.
The Bank of England has forecast inflation could rise to around 3.7% during the first three months of the year and 4.2% during the first three months of 2027. Higher inflation could affect future decisions on interest rates, which influence borrowing costs for households and businesses.
Funding Support Remains a Challenge
Any new energy support programme would need government funding, creating additional pressure during Budget discussions. Possible options being considered include tax changes, such as increasing capital gains tax or adjusting thresholds linked to property-related taxes.
The Chancellor is also facing reduced financial flexibility after higher borrowing costs affected the government’s budget position. Officials are considering whether to accept a smaller financial buffer in order to limit the number of tax increases announced in the upcoming Budget.
Budget Decision Expected in October
The government has not yet confirmed whether new targeted energy support will be introduced.
A spokesperson said the Chancellor remains focused on helping families and businesses manage cost pressures, highlighting measures such as removing VAT from electricity bills and reducing electricity costs for more than 10,000 manufacturing businesses through the British Industrial Competitiveness Scheme.
Any new proposals are expected to be announced during the Budget on October 28, when the government will reveal its next steps on energy costs and household support.
