In a statement to MPs, the new Prime Minister announced an energy price guarantee which she said would save the average household £1,000 a year based on current energy prices from 1 October. However, the regime is less generous than expected for businesses. The government plans to introduce a six-month cap on business energy bills, which will be reviewed at the end of the period. It can be extended for vulnerable domains. Liz Truss announces the energy support package The government has refused to burden the program, highlighting the uncertainty about future wholesale prices. However, The times the “gross” cost to the government has been said to be £150 billion. The scale of the program is such that the government believes it will reduce the peak rate of inflation to between 4 percent and 5 percent. Economists have predicted that inflation could reach as high as 18 percent next year without intervention. Truss also announced the end of the fracking ban and is planning 100 new licenses to drill for oil and gas in the North Sea. He said he had “acted immediately” so that people and businesses would be supported over the next two years. The Prime Minister is leaving 10 Downing Street this morning PETER NICHOLLS/REUTERS “Extraordinary challenges call for extraordinary measures, ensuring that the UK is never in this situation again,” he said. Truss also announced that the government was setting up an energy supply task force led by the official who led the vaccine task force. This will initiate negotiations with domestic and international suppliers to agree long-term gas contracts. It will also negotiate with renewable electricity suppliers — which are not fixed-price contracts — to reduce the prices they charge as well.
Experts warn ‘no cost details’
Liz Truss has been urged to come up with a cheaper alternative to freezing energy bills in time for next winter, as economists expressed concern over the “extreme” lack of any official costing (Chris Smyth writes). Free market analysts also slammed the plan as “middle-class welfare on steroids” after estimates it would end up costing taxpayers more than £100bn. However, most experts concluded that there was no alternative to today’s massive intervention given the scale of energy price increases. Paul Johnson, director of the Institute for Fiscal Studies, who described the freeze as dire but inevitable, estimated it could “easily cost over £100 billion next year alone, with more to come the year after. Given the scale of the package, the failure to provide any formal sense of costing was extraordinary and deeply disappointing.” He said taxpayers would shell out £75m for every extra £1 households spend on energy, urging the government to find an “exit strategy from this massive and costly intervention. Worryingly, he appears to be committed to this policy until next year as well as this one. It might be forgivable that you can’t find anything better designed and better targeted at this time. Surely a concerted effort should now be made to find something better for next winter.” Torsten Bell, of the Resolution Foundation think tank, said the government “rightly did the inevitable” but “hid from the fiscal implications” of the plan without including costs. He agreed with Truss that the plan would reduce inflation, but warned that a boost to household incomes would push it up, “hence the fact that many in the Bank of England believe it means higher interest rates despite lower measured inflation ». But Andy Mayer, of the Institute of Economic Affairs, said: “Freezing energy prices is middle-class welfare on steroids. It represents a giant, untargeted handout to households financed by rising debt. It will mean that future taxpayers will subsidize hot tubs, pool heating and wine cellar cooling. Price controls do not work. The freeze will encourage more energy use, risking blackouts and discouraging investment in energy conservation.” John O’Connell of the TaxPayers’ Alliance, the free-market think tank that provided Truss with many of her key aides, added: “the bill for the price freeze will hang over taxpayers’ heads for years to come.” .
A gamble on the UK’s economic future
Just two days into her prime ministership, Liz Truss is betting her political future on a massive energy support package for households and businesses paid for by additional borrowing (analysis by Oliver Wright). The details of the announcement were largely as expected — but there were some surprises. First, the package is less generous to businesses than expected. It had been proposed that it would also freeze their energy costs for two years. Instead – almost certainly in an effort to reduce the overall cost of the plan – companies will only have account restrictions for six months. After that, the government will move towards a more targeted support programme, helping industries such as hospitality, rather than a blanket subsidy. Second, in real terms, bills will continue to rise next year. The government has capped the unit price at a level which means the typical bill will be £2,500 a year. This is £538 more than the current Ofgem price cap of £1,971. Of this, £400 is covered by the continuation of Rishi Sunak’s summer support package which will be paid to households in installments over the winter months. But from April this will fall, meaning that in real terms bills will rise. Third, despite speculation, the government has so far not priced its plan. Truss said the new chancellor would put a price tag on the bailout in a statement this month, but so far we are in the dark about how much it will cost and how much will be paid for by increased government borrowing. That will be critical to the market’s reaction to the plan – and the extent to which it raises the cost to the government of new debt. Finally, Truss announced a plan to reduce long-term gas and electricity costs in the UK. He announced the creation of an energy task force led by the official who led the vaccine task force to begin negotiations with domestic and international suppliers to agree long-term gas contracts. It will also negotiate with renewable electricity suppliers — which are not fixed-price contracts — to reduce the prices they charge as well. The potential risk is that the government could end up entering into long-term contracts that provide cheaper gas now but prevent the UK from paying for more expensive gas in the long term when and if international prices fall. Such contracts are essentially an economic bet that could keep energy bills well ahead of where they were two years ago in the long run. Truss is not only gambling its own future on this package, but also the economic future of the UK.
Miliband attacks Truss over unexpected tax refusal
Ed Miliband has repeated Labour’s calls for a further tax on energy company profits ZUMA PRESS/THE MEGA AGENCY Labor has accused Liz Truss of being “dogmatic” for refusing to impose a windfall tax on energy companies (writes George Grylls). Ed Miliband, the shadow climate change secretary, repeated Labour’s calls for a further tax on the estimated £170bn of surplus profits to help people with their energy bills. “We are confident that tens of billions of pounds of this could be paid for through tax windfalls. As a result of doctrine and ideology, Liz Truss says no to that,” he told Times Radio. He also said Jacob Rees-Mogg, the new business and energy minister, had a “worrying” record of challenging the science of climate change and criticized the government’s expected decision to lift the fracking ban. “Jacob Rees-Mogg has a record that disturbs me deeply,” he said. “All this nonsense about lifting the ban on fracking. It is not a solution to this problem.” Miliband also acknowledged Labour’s failure to elect a female leader and said the party needed to “do better”. He said: “I want Keir Starmer to be the Prime Minister. I support him to become prime minister. But of course, you know, I would prefer it if we had a female leader. I think female leadership is important.”
Martin Lewis: Millions will breathe a sigh of relief
Martin Lewis has warned of “disaster” this winter KEN MCKAY/ITV/SHUTTERSTOCK Martin Lewis, the consumer campaigner, said the support package was “welcome” and would bring relief to tens of millions of people (writes Stephen Swinford). Lewis was angered by the failure of the “zombie government” to act over the summer as he warned of a disaster this winter. He told BBC Radio 4 Today: “My big call has always been that we have to have the political will to do something. I think we now have that political will, I very much welcome the plans that are coming today. Millions of people, if not tens of millions, will breathe a sigh of relief.”
Households must show discipline, says the minister
Simon Clarke, the leveling secretary, urged people to show “common sense and good cleanliness” TIMES PHOTOGRAPHER JACK HILL People need to show “discipline” and save on energy use to keep bills down and protect the UK’s energy supply, a minister has said (Steven Swinford writes). The times revealed this morning that the government was planning a public information campaign to encourage people to reduce their energy use this winter. There are concerns that freezing energy prices will discourage people from saving energy at a time when there is significant concern about supply. Simon Clarke, the leveling secretary, told Times Radio: “I have…
