With gas prices predicted to slump across Europe, Chancellor Jeremy Hunt could be provided with £5bn boost to help families with energy bills this winter. Goldman Sachs is predicting that European gas prices will slump from the current level of €125 per megawatt hour to €85 in early 2023, less than a third of the €300 reached in August.
Sanjay Raja, Deutsche Bank UK chief economist, said: “With prices dropping, the price tag for the EPG is also falling.”
He added the latest data predicts that the cost of the six-month EPG will be £25bn, “roughly £5bn lower than what was included in the Growth Plan costing”.
Warmer weather conditions have also helped countries store more energy reserves so far, delivering a blow to Vladimir Putin’s agenda to freeze the West this winter.
Goldman Sachs’ prediction on gas prices could positively influence the upcoming government budget announcement.
Prime Minister Rishi Sunak is expected to announce major tax grab from energy firms to raise £40billion over five years.
The plans will also see the Government extend the levy, which is due to end in 2026, until 2028 and expand the scheme to cover electricity generators.
The changes are expected to increase revenues from the existing tax by 50 percent to £40billion.
The plans form just one part of an attempt to fill a £50billion hole in the public finances.
The Prime Minister is also expected to implement a raft of other tax rises and spending cuts, which will also be announced in the November 17 budget.
Mr Sunak and Mr Hunt are due to submit their plans for the budget to the Office for Budget Responsibility by the end of the week.
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According to The Daily Telegraph, a Treasury source said: “It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services.
“After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.”
The warning came as the Resolution Foundation think tank said Mr Sunak and Mr Hunt face an “unpalatable menu” when it comes to rebalancing the nation’s finances.
With a deteriorating economic outlook and the legacy of last prime minister Liz Truss’s disastrous mini-budget as a backdrop, it suggests the Government will need to find at least £40 billion – likely through a combination of tax rises and spending cuts.
The think tank said the Office for Budget Responsibility could predict a recession next year, with GDP forecasts cut by up to 4% by the end of 2024.
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Unemployment could also rise by around half a million, the report suggests, with the weaker economic outlook bringing borrowing up by around £20 billion a year by 2026-2027.
“The Government has a little over two weeks to finalise its plans to repair its economic credibility and the sustainability of the public finances,” said James Smith, research director at the Resolution Foundation.
“While the recent focus has been on conditions improving post-Trussonomics, the central picture remains one of a weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40 billion to fill.”
According to the report, the Government may struggle to meet its fiscal rules of reducing the debt-to-GDP ratio in the medium term and deliver a current-budget balance unless “significant further policy action is taken”.
Among the “menu” of options open to the Chancellor are cuts to investment spending, a move the Resolution Foundation said could save £10 billion but also have a detrimental impact on growth.
The think tank also suggests the Government could try to choose the so-called “austerity option”.
Such a move would require cuts to already-squeezed department budgets.