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), said Ms Truss’s two-year 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?”
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.”
And there were signs of concern on Tory benches over Ms Truss’s rejection of a windfall tax. The Conservative chairman of the Treasury select 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”.
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.
