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Budget 2013 to feature more cuts as energy bills rise

As energy bills force up inflation, what can we expect from the government’s Budget?

Chancellor George Osborne is set to announce a programme of £2.5 billion in spending cuts in today’s Budget as he aims to bring down Britain’s debt and ultimately boost growth over the next two years.

It comes after a rise in energy bills across the UK has resulted in the cost of living increasing to a nine-month high and placing further pressure on people to squeeze as much as possible out of their household income.

At a pre-Budget cabinet meeting earlier this week, Mr Osborne and Chief Secretary to the Treasury Danny Alexander explained to Whitehall that 1% in savings need to be made over the next two years, on top of the 3% reductions that were announced in the Chancellor’s Autumn Statement last year.

Many departments are set to be exempt from cuts, including HMRC, the NHS and schools, after the possibility of an internal backlash against Mr Osborne was raised when Home Secretary Theresa May and Communities Secretary Eric Pickles publicly questioned the need for further cuts.

Deep impact

It means that the sole impact of the spending cuts will be felt across fewer departments and is likely to raise eyebrows, as Chancellors rarely alter public spending plans in the middle of the year.

The Budget 2013 is also likely to bring the possibility of job cuts, as sectors such as transport and business, which will receive no protection from the cuts, will suffer.

The result will be increasing pressure placed on the cost of living for members of the public who have this week learned that the Consumer Prices Index rate of inflation has risen to 2.8%, following another round of gas and electricity price rises from energy suppliers.

The increase pushes CPI even further past the Chancellor’s target of two per cent and means that he is under immediate pressure to act fast and ease the strain on consumers.

This is likely to manifest itself in the scrapping of planned duty rises for fuel and beer, but this alone will not be enough to ease the strain on household budgets.

Double whammy

Commenting on the news earlier this week, Ann Robinson, Director of Consumer Policy at uSwitch, said it is a “double whammy” for consumers who are feeling the impact of higher energy prices through both their bills and the effect of inflation.

“Consumers are calling on the Chancellor for help, looking to the Budget to tackle the issues that matter to them – specifically the cost of utility bills and petrol prices,” she added.

The way forward

A possible solution has been suggested by the campaign group Energy Bill Revolution – a programme of energy efficiency improvements for the nation’s homes that will help to create jobs and stimulate growth, while helping those who cannot afford to keep their homes warm.

The organisation claims that, as well as helping the the government to generate much-need growth in the UK economy, it may soften the public’s stance regarding ongoing austerity measures that are reducing benefits and public spending.

As of 2013, the coalition is benefiting from the auctioning of carbon permits under the EU Emissions Trading Scheme and the revenue raised by the Carbon Floor Price, which are expected to raise around £4 billion a year for the next 15 years; a revenue stream that should be directly re-invested in a major energy efficiency programme, Energy Bill Revolution claims.

“The work could be delivered through additional support for planned policies for example, the provision of extra funding for the Energy Company Obligation, and the subsidy of Green Deal interest rates,” the organisation claims.

“There are also strong arguments for providing support to local authorities to carry out area-wide improvements that have been shown to be popular and cost effective.”

Previous research has shown that such policies would provide a greater boost to the economy than cutting VAT, reducing fuel duty or investing in capital infrastructure.

It is a conundrum that the Chancellor will need to take into account when delivering what is arguably the most important Budget of the current administration, and one which may be pivotal in providing much-needed relief to the UK economy and members of the public.