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Families hardest hit by the looming energy crisis caused by the Iran war could be given funds dispensed by local councils, under plans being considered by UK ministers keen to keep a lid on costs.
As concerns increase about the impact of rising fuel and energy costs in response to a drawn-out conflict in the Middle East, a government official said several options for extending support were being debated inside Whitehall.
Under one plan, extra cash could be injected into the crisis and resilience fund (CRF), a £1bn a year council-run scheme in England that takes effect from Wednesday “to provide preventative support to communities, as well as assisting people when faced with a financial crisis”.
It is understood that the fund could be topped up to help cushion households identified by councils as facing particular hardship from higher energy bills.
The chancellor, Rachel Reeves, is examining plans to support households with energy bills forecast to hit nearly £2,000 a year from July.
However, she has ruled out the universal support offered by Liz Truss’s government in 2022 and is under pressure from financial markets to limit the extent of the support to keep within budget spending limits.
Thinktanks have been urging the government to move quickly to identify the poorest households amid concerns about the complexity of the task.
Between 2022 and 2024, after Russia’s invasion of Ukraine, Treasury calculations showed households in the top 10% of earners received an average of £1,350 of direct energy bill support.
One official said, this time, targeting support was important.
Torsten Bell, a minister in the Department for Work and Pensions and the Treasury, is understood to be coordinating the government’s response.
Bell is known to be concerned that bailouts only targeted at benefit claimants will attract negative headlines in parts of the media that are concerned about the drop in living standards among lower-paid workers who do not usually qualify for state support.
An extension of the CRF would allow households that have high bills but do not currently qualify for benefits to apply for grants.
The Treasury declined to comment.
Last week, Reeves told the Commons: “The progressive, universal approach that we are taking is the right one … £150 off everyone’s energy bills, but then targeted support for those who need it most.”
She added: “Contingency planning is taking place for every eventuality, so that we can keep costs down for everyone and provide support for those who need it most. Acting within our ironclad fiscal rules to keep inflation and interest rates as low as possible.”
Government borrowing costs around the world have climbed since the US and Israel attacked Iran as financial markets have calculated that governments will be urged to borrow more heavily to cope with the war’s aftershocks.
Declines in bond prices have pushed the yield, or interest rate, higher. On Friday, the interest rate on 10-year debt hit its highest level since the 2008 financial crisis, just over 5%. Rates eased to 4.95% by Monday.
Without a truce or resolution in the Middle East conflict, rising yields would further increase the interest bill on government debt and eat into the chancellor’s budget headroom.
Brent crude is on course for a record monthly rise of nearly 60%, exceeding gains it made during the 1990 Gulf war.
The global oil benchmark rose 3.5% on Monday to just over $116 a barrel.
The latest Which? consumer insight tracker found that rising prices were forcing half of UK households, an estimated 14 million, to make at least one adjustment – dip into savings, sell possessions or borrow money – to cover the cost of essentials on a daily basis.
Several European governments have acted to reduce the strain on households. Madrid has cut the level of VAT on fuel while Berlin has limited German petrol stations to one price rise a day.
Sébastien Lecornu, the French prime minister, said the government was planning to expand the number of households eligible for support.
He said an additional 700,000 extra households would receive an average of €153 (£133), bringing the total number of beneficiaries to about 3.8 million, at a cost of €600m for the state.
In a message posted on X, Lecornu said the mechanism, which has existed since 2018, helped the poorest households “cope with energy expenses and pressure on purchasing power” by directly reducing electricity, gas, or heating oil bills.
