Image Credit – Marcin Jozwiak
The Guardian has reported a package that marks one of the biggest government interventions since the financial crisis of 2007-2008. Liz Truss has outlined her plan to deal with the current energy chaos. “Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again,” Truss said.
This plan is in response to the continued surge in energy bills faced by households and businesses, due to Russian sanctions and the growing global demand with energy inflation reaching a 40-year high. Prior to this package, the Financial Times reported the maximum amount for a typical household energy use had been before the package due to rise to more than £3,500 in October, with some projections showing that bills could have topped £6,000 in the next year.
The plan is to freeze energy bills at an average of £2,500 a year for two years, subsidised at just above the current price cap of £1,971 for a typical family. Included in this is Rishi Sunak’s £400 universal discount where households will start to receive £400 off their energy bills made in six instalments from October. With bills frozen at £2,500 a year until the end of 2024, Truss has also laid out plans to get rid of green levies that make up around 8% of domestic bills adding around £150 to annual bills.
Rates will be capped at the following tariffs:
Gas: Unit rate: 10.30p per kWh, standing charge: 28.49p per day
Electricity: Unit rate: 34.00p per kWh, standing charge: 46.36p per day
The new Energy Price Guarantee will limit the price suppliers can charge households for every unit of energy they use. The cap is not the maximum amount of energy your supplier can charge you on your overall bills, rather it is based on the price a consumer pays per KWh of energy used.
The package is estimated to cost £150bn and will be funded through borrowing adding to the pot of national debt, rather than a windfall tax imposed on energy companies. Instead, the scheme will involve the transfer of £150bn of taxpayer funds to energy suppliers to meet the difference between the newly imposed capped consumer price and power in the wholesale markets.
Kier Starmer responding on behalf of the Labour Party has condemned Truss’s decision to fund the scheme through more government borrowing. “The prime minister is opposed to windfall taxes,” Starmer said as “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 new prime minister has said she will invest in longer-term measures to make the energy section more affordable and substantiable in coming years. As the drastic state intervention is accompanied by pledges to lift the ban on fracking for shale gas and licensing of new North Sea Oil and domestic gas production.
Starmer has also condemned this focus on oil and gas, as opposed government action towards insulating homes saying that “doubling down on fossil fuels is a ludicrous answer to a fossil fuel crisis.”
‘Equivalent’ support to that of households will be given to businesses and public sector bodies such as schools and charities, in a new six-month scheme. However, limited details were given about this. A three-month review will assess how this could be better targeted.
A fund will also be created for those who are not covered by the cap, included in this are those who have communal heating schemes, use heating oil in their homes and those living in mobile home parks that pay their park owner rather than a supplier. The prime minister, however, did not cover how big this fund would be.
For those on a fixed energy tariff higher than the freeze according to the Department of Business, your bills will automatically be cut. Evidenced by the Energy supplier E.On who has said its customers do not need to act as it will implement the scheme across its tariffs.
It is important to emphasise that energy companies do offer grants and if you are falling behind you should speak to your supplier.