A typical household in Britain will pay no more than £2,500 a year for energy bills until October 2024 under a new government guarantee, prime minister Liz Truss has announced.
Under the plan to deal with soaring household bills the existing energy price cap will be replaced with an “energy price guarantee” with the government subsidising suppliers to cover the gap with wholesale prices from 1 October.
The policy will mean families will be spared the expected leap in average bills form £1,971 to £3,549, saving an average of around £1,000 this year. But savings could fall in the second year, as the one-off payment of £400 announced earlier this year by Rishi Sunak has not been extended.
All businesses and other non-domestic properties like schools or charities will have similar support for six months from October, with a review after three months to target subsequent payments on those most at need.
Businesses were not covered by the previous price cap and were facing hikes in bills of as much as five or six times. Under the new scheme, the government will intervene to keep down wholesale prices.
No 10 and the Treasury refused to put an estimate on the cost of the total package. Experts have estimated a price tag of as much as £150bn, but Whitehall insiders believe this is way too high and hope the final bill will come in below £100bn.
Chancellor Kwasi Kwarteng will give the first official estimate in his emergency budget later this month, though officials warned that the eventual cost could vary widely depending on fluctuations in global market prices.
Carl Emmerson, deputy director of the respected Institute for Fiscal Studies (IFS), has said Liz Truss’s two-year energy support plan could cost more that £100bn in the first year alone. “The cost will be very, very uncertain,” he told BBC Radio 4’s The World at One.
Unveiling her plans in the Commons, Ms Truss again flatly refused Labour’s calls for all or part of the scheme to be funded by a windfall tax on energy giants’ excess profits, estimated by the Treasury at £170bn.
“We will not be giving in to the leader of the opposition who calls for this to be funded by a windfall tax,” she said, to cheers from the Tory benches. “That would undermine the national interest by undermining the very investment we need to secure home-grown energy supplies.”
Labour leader Sir Keir Starmer questioned why Ms Truss remained so opposed to a new windfall tax – arguing that his own party’s proposal for an expanded levy on producers would allow bills to be frozen at current levels.
“Under our plan not a penny more on bills, under this plan a price rise,” said Sir Keir. “This support does not come cheap. The real question is, who is going to pay?”
And there were signs of concern on Tory benches over Ms Truss’s rejection of a windfall tax. The Conservative chairman of the Treasury Committee Mel Stride told the Commons a new levy on energy companies should be “at least considered”.
And a former Treasury minister told The Independent that while Tory MPs will applaud Ms Truss’s package but “most won’t appreciate the risk – or want to yet”.
Sir Keir pointed to £170bn of “excess profits” that oil and gas producers are expected to enjoy in the next two years, an estimate made in recent Treasury analysis leaked last month.
He added: “The prime minister is opposed to windfall taxes. She wants to leave these vast profits on the table, with one clear and obvious consequence – the bill will be picked up by working people.”
The Liberal Democrats have accused the Conservatives of bringing in a “phony freeze” on energy bills – pointing out that £2,500 will be double the £1,277 cap was for last winter.
“This phony freeze will still leave struggling families and pensioners facing impossible choices this winter as energy bills almost double,” said leader Sir Ed Davey.
Ms Truss also suspended the £150 green levy on bills to pay for renewable alternatives, but officials said the programmes will not be scrapped but will in future be funded from general taxation.
As part of a “twin track” approach of keeping bills down and enhancing supply, she announced more than 100 new licences to drill for oil and gas, and lifted the ban on fracking in the UK – despite warnings this will have little immediate impact on prices.
She set out the ambition of making the UK a net energy exporter by 2040. The new energy guarantee will set a cap on the unit price of energy, meaning that the actual bill paid by households will vary depending on gas and electricity use.
Officials estimate that the annual saving is likely to range from an average £650 for a well-insulated purpose-built flat – where typical bills will be cut from an expected £2,400 to £1,750 – to £1,400 for a detached home, where the cost will fall from an expected £3,800 to £2,650.
A new energy supply taskforce, led by vaccine taskforce director general Madelaine McTernan, has begun negotiations with suppliers to agree long-term contracts to reduce the price of energy and increase security of supply.
The taskforce will also negotiate with renewable producers to reduce the prices they charge, which are currently pegged to the far more expensive gas.
But Labour’s shadow climate secretary Miliband said long-term fixed-price contracts would only “lock in” massive profits for electricity companies for years to come, saying it was something the umbrella body Energy UK had called for.
“Let me explain why,” he told BBC Radio 4’s Today programme. “What Energy UK have said is we’ll accept slightly lower prices now, so we can have much higher prices over the following 15 years. This would be a terrible deal for the British people, a terrible deal for billpayers.”
Mr Miliband described the government’s rejection of the tax as “dogma” and said the argument investment would be reduced was “completely bogus”.
Ms Truss also promised a review of the net zero 2050 target, led by Tory MP Chris Skidmore MP – saying she wanted to ensure we deliver the landmark pledge “in a way that is pro-business and pro-growth”.
The government expects Ms Truss’s package to curb inflation by 4 to 5 points, potentially bringing the peak of 19-22 per cent forecast by analysts for next year down to 14-17 per cent. The PM also believes it will deliver a boost to growth and thereby drive increased tax receipts.
Ministers aim to sign standardised contracts with the energy suppliers within the next couple of weeks to ensure they are ready to deliver the new unit price cap from 1 October.
Ms Truss’s official spokesperson said there were no plans for a government publicity drive to encourage people to take energy-saving steps in their day-to-day lives.
Members of the public are already using their “common sense” in response to higher bills, he said, adding: “The government is not in the business of providing that sort of bespoke advice. It will be for individuals and businesses to decide.
“There is support and advice already, should people be interested, on how they can reduce their usage if they wish to do so.”
