New UK PM must be radical to stop power bill catastrophe - think tank

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Electricity pylons are seen in Wellingborough, Britain, March 30, 2022. REUTERS/Andrew Boyers

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LONDON, Aug 25(Reuters) - Britain's next prime minister must adopt radical ideas - such as discounted power tariffs, energy bill freezes or a "solidarity" tax hike for higher earners - to cushion the energy price shock for a broad swathe of households, a think-tank said on Thursday.

A day before a latest big jump in power tariffs is due to be announced, the Resolution Foundation said tens of billions of pounds in new government support had to be targeted at households least able to cope with surging energy costs, and ensure that no one needing help misses out.

"A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain," Jonny Marshall, a senior economist at the foundation, said.

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"The new prime minister will need to think the unthinkable in terms of the policies needed to get sufficient support to where it's needed most."

The front-runner in the race for Downing Street, Foreign Secretary Liz Truss, wants to cut taxes to address the cost-of-living crisis.

But her promise to scrap an increase in social security contributions would give the richest fifth of households twice as much in cash terms as the entire poorest half of households, the Resolution Foundation said in a report.

The plans of her rival, former finance minister Rishi Sunak, to target support on lower-income households failed to account for families' differing energy usage and exclude those outside the benefit system.

The foundation proposed options such as a cheap power tariff for low- and middle-income households, a universal 30% cut in the energy price cap or a one pence-in-the-pound tax increase for higher-income households.

It also said lump sum payments that reflect household size should be considered.

The opposition Labour Party wants a price cap freeze for all households, funded by a windfall tax on oil and gas producers.

The Resolution Foundation said Labour's measures risked creating more inflation pressure and forcing the Bank of England to increase interest rates more aggressively.

Britain's government has so far committed more than 30 billion pounds ($35.36 billion) in cost-of-living support for households, almost half the cost of its pandemic-era furlough programme to prop up the labour market.

($1 = 0.8485 pounds)

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Editing by William Schomberg

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