Last week, Chancellor Rishi Sunak announced a new cost of living support package. It is the government’s response to sharp uptick in everyday living costs. Fuel prices have hit an all-time high. Food prices are soaring, with wheat and sunflower oil becoming scarcer due to the Ukraine war. The energy price cap is expected to rise by £830 in October, pushing it up to an eye-watering £2,800. In addition, high inflation is outpacing wage increases, leaving less money in people’s pockets.

Given this backdrop, calls upon the government to help have become louder and more numerous in recent weeks. The result is the new cost of living support package, which is designed to help soften the impact on household finances. In this article, we’ll take a look at the new package, how it works and the payments you can expect.

Energy Profits Levy

First of all, the government needed to find a new source of income to pay for the support package. It has done this with the Energy Profits Levy. This is essentially a 25% windfall tax on the profits of oil and gas companies. This is expected to raise an additional £5 billion over the next year. The levy will remain in place until oil and gas prices return to ‘historically more normal levels’. The legislation will also include a sunset clause, meaning it will be phased out no later than December 2025.

The new levy is not all bad news for the energy sector. A new 80% investment allowance will encourage eligible firms to invest in UK oil and gas extraction. This is equivalent to a tax saving of 91p for each £1 invested.

The Energy Bill Rebate

Back in February 2022, the Chancellor announced that each household would receive a £200 discount on their energy bills. This was to have been a loan, repayable in £40 instalments during the five years after April 2023.

This loan has now been scrapped. Instead, each household will now be given a £400 grant towards their energy bills. It is not repayable. This will be paid directly to energy companies from October. They will then automatically pass on the discount to customers over the following six months.

Low Income Household Support

The cost of living support package also includes additional support for low income households. Eight million households that receive Universal Credit, Tax Credits, Pension Credits and legacy benefits will be given a one-off £650 payment. HMRC will pay people on Tax Credits in due course. For those on benefits, the Department for Work and Pensions (DWP) will pay them £325 in July and the remainder in the autumn.

In addition to this, pensioner households will receive an additional one-off payment of £300. Anyone who receives disability benefits will get an extra payment of £150.

In addition to these grants, the government has poured an extra £500 million of funding into the Household Support Fund. Delivered by local authorities, this is a discretionary fund designed to help households – particularly those including children and pensioners – that are struggling with energy, food and water bills. Households needing this support should contact their local council directly.

Are cost of living support payments taxable?

All of the cost of living grants are non-taxable. Therefore, you do not need to declare them on your Self-assessment Tax Return.

Where can I find out more information about cost of living support?

The government has published a cost of living support factsheet which covers the scheme in more detail.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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