Dire warning for families: Inflation set to soar to SEVEN per cent within weeks

Windfall tax on energy firms is 'easy and ethical' says Vince

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Figures from an internal Government study estimated the energy bill increase could see a multibillion-pound hole in public finances. The Government may have to raise the cap on energy prices by as much as 50 per cent.

The average cost of gas and electricity for a household in the UK could then increase to about £2,000. 

Ofgem, the energy regulator, is reviewing the existing price cap amid soaring wholesale prices on energy markets.

Because of the increase in energy prices, the Government may need to raise the average cost of gas and electricity for a household from £1,277 a year to about £2,000.

Government projections are understood to suggest that such a rise in energy prices could push inflation a further 2 per cent higher in April.

The rate of inflation would then rise from its level of 5.1 per cent in November to a new total increase of over 7 per cent in February.

The rising cost of energy in the UK will pile pressure on public finances that could then lead to further potential rises in interest rates.

Rishi Sunak has previously suggested that a sustained 1 per cent increase in interest rates could add £25 billion to the cost of servicing government debt.

A forecast by Goldman Sachs suggested that rising fuel bills would contribute to inflation reaching 6.8 per cent in the UK, its highest level in 30 years.

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The Chancellor and the Prime Minister are to discuss the energy crisis early next week because of growing concerns about the impact of the price cap.

Business secretary Kwasi Kwarteng has also been in discussions with energy suppliers about possible measures to reduce the rises.

These include an industry-wide “structural fund” that would allow companies to borrow money to keep bills lower.

Companies would then repay the money by not reducing bills as quickly when wholesale energy prices fall.

Cash strapped British energy suppliers are asking the Government to underwrite the loans to keep the cost of borrowing down.

However, the UK Treasury is resisting this measure.

Now Government Ministers are even contemplating suspending the environmental and social levies on bills that pay for energy efficiency improvements and some renewable projects, in a way to alleviate the situation in the short term.

However, this would undermine Boris Johnson’s green credentials and link rising energy costs with the net-zero agenda.

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