The chancellor is working on plans to increase the discount given to households on certain benefits, currently £150, by a further £100, funded by taxpayers rather than bill-payers. Final decisions have not been made, but Healey is understood to be rebuffing a call from energy secretary Miatta Fahnbulleh to spend billions more on removing levies from bills altogether.
Fahnbulleh has been pushing for more sweeping action to reduce bills for all consumers by as much as £120 by removing levies, which fund renewable energy and efficiency schemes, and paying for them through taxation instead. She told the Guardian last week: "If we want a system that is resilient, if we want a system that can cope, if we want a system that ultimately can deliver the diversity of energy that we want, what is the fairest way in which we pay for it? … We have to ask that question. Every other country is asking that question, and ultimately we've got to come to a fair deal." Removing levies from bills would cost as much as £3.2bn.
Healey is facing a cash crunch as he looks for money to fund an additional £4.7bn in defence spending and to rebuild his fiscal buffer eroded by higher borrowing costs. He is likely to raise taxes, with bank taxes reportedly under consideration. Government sources had previously insisted the VAT cut to electricity bills would be the last support this year, but became concerned by forecasts showing the Iran war would push up bills, eroding the VAT cut's impact.
The warm homes discount increase, if approved, will form a major plank of the budget, which government sources say will be low-key but focused on reducing voters' cost of living. Energy officials are also working up more radical changes to bills that could be implemented after the budget, changing how much companies could charge customers rather than subsidising bills.