The price of a typical British household’s energy bill will be capped at £2,500 a year for the next two years, UK Prime Minister Liz Truss announced on Thursday as part of a package to tackle the cost of living squeeze.
It’s unclear how much the package will cost, but it was estimated to run between £100 billion and £150 billion, which will be paid for out of Treasury funds and by borrowing.
Price Cap
Speaking to Parliament on Thursday, Truss announced a two-year Energy Price Guarantee scheme that freezes the maximum price households can be charged for a unit of electricity and gas, capping a typical household’s energy bill at £2,500 per year.It will override energy regulator Ofgem’s price cap, which was set to rise next month from £1,971 to £3,549 per year for typical household bills and jump up further next year due to volatile global energy prices.
A temporary suspension of green levies will account for around £150 of the £1,000 price cut. The government also said it will continue funding schemes that were previously funded by the tax. It also said it will pay energy suppliers the differences between the new cap and the price that would have been charged if the policy were not in place.
The scheme is on top of a £400 energy rebate that was already set to begin arriving in October, meaning bill sizes will remain largely unchanged this winter, depending on the amount of energy used.
The same level of support will be made available to households in Northern Ireland, the government said.
A new fund will be set up to cover those who use heating oil, live in park homes, or are on heat networks, providing them with “equivalent support,” Truss told MPs.
Businesses, charities, and public sector organisations will also get an “equivalent guarantee for six months,” after which further ongoing support will be given to “vulnerable sectors such as hospitality.”
Business Secretary Jacob Rees-Mogg is tasked with working out how this support should be targeted, with a review concluded in three months’ time.
“In the meantime, companies with the wherewithal need to be looking for ways they can improve energy efficiency and increase direct energy generation,” Truss said.
She also implied fuel duty may be cut, responding to a question from Conservative MP Robert Halfon by saying, “I’m sure the Chancellor of the Exchequer [Kwasi Kwarteng] is listening intently to his point ahead of his fiscal statement later this month.”
The scheme comes as the UK’s inflation hit double-digits in July for the first time in 40 years. It’s expected to curb inflation by four to five points, according to government estimates.
Truss also said Kwarteng will lay out later this month as part of his fiscal statement the cost of the package.
She rejected Labour’s call to fund the package by expanding windfall tax on the profit of energy companies.
Labour leader Sir Keir Starmer said this meant “the bill will be picked up by working people,” rather than oil companies that are forecast to make £170 billion in windfall profits over the next two years because of soaring energy prices.
Truss defended her decision, saying more windfall tax would “undermine the national interest” and arguing her plan is “pro-growth, pro-business, and pro the investment we need for our country’s energy security.”
To reduce the cost of the scheme, a new COVID-19 vaccine-style taskforce is already negotiating long-term energy contracts with domestic and international gas suppliers “to immediately bring down the cost of intervention,” Truss said.
New Domestic Supplies
Britain imports most of its natural gas—though largely from Norway, not Russia—and so is vulnerable to shifts in global prices. While Russia’s invasion of Ukraine led to soaring global energy prices, Truss said the war exposed the failure of the UK to “focus enough on securing supply” due to “decades of short-term thinking on energy.”Truss said the government will ramp up pushing “all sources of domestic energy, including North Sea oil and gas production,” and make the UK a net exporter of energy by 2040.
The new body, named Great British Nuclear, will be launched next month. New oil and gas licensing are expected to begin “as early as next week,” leading to over 100 new licences.
On Thursday, Truss confirmed the moratorium on the UK’s shale gas fracking, which was in place since 2019, will be lifted. The government said it means gas could be “flowing in as soon as six months.”
But Kwarteng previously wrote in the Mail on Sunday saying it would take a decade to get sufficient volumes of gas from fracking.
Truss vowed that she is “completely committed to net zero by 2050,” announcing a review led by MP Chris Skidmore on how to deliver the target “in a way that is pro-business and pro-growth,” as well as a review on energy regulation.
