Until yesterday (6 September), Liz Truss was a woman without a plan. The UK has been watching in desperation as she has toured the lawns and halls of Tory Britain, vying to be the party’s next leader, with no mention of how she planned to avoid mass fuel poverty this winter. All the while, the forecasts for the nation’s energy bills turned ever grimmer.
Now that she is officially Prime Minister, Truss finally seems on the brink of producing a plan to help people – just as the energy price cap is due to rise in October by 80 per cent.
We still don’t have the details, but a number of well-connected political journalists have been reporting what the plan will likely involve. So with the heavy caveat that we’re working off briefings and unconfirmed reports, here’s what we know so far.
The existing system, whereby Ofgem decides the energy price cap every three months, will be replaced by ministers setting the price that energy suppliers are allowed to charge customers – which will be reviewed every quarter, according to a report from Bloomberg.
Truss is expected to freeze household bills, per a report in the Times. It’s unclear what the energy price will be for consumers, with one source in the piece suggesting it will be frozen at the current average cost of £1,971, plus the universal £400 grant already announced by the previous administration. Or a little higher at around £2,500.
Data by Nick Ferris.
Truss is also expected to help businesses with their bills, which are not currently covered by the energy price cap. Bloomberg also reported that she will either freeze their bills as with households, or implement a special unit price reduction that suppliers must offer businesses. The government will pay for the energy companies’ shortfall under this pricing regime.
We know that Truss has already promised to remove a green levy of about £150 a year from energy bills too.
The cost of the household policy could be £130bn if it’s implemented for 18 months, according to policy documents seen by Bloomberg. The latter also reports that the business part of the policy could cost between £21-42bn over six months. For context, altogether this would be nearly double the cost of the Covid furlough scheme.
We also know that Truss has ruled out further windfall taxes on the profits of oil and gas companies.
Her reported price freeze plan is similar to Labour’s proposal, announced earlier in the summer, to freeze energy bills at their current average price. But Labour says it would pay for this through more windfall taxes on oil and gas producers – the very taxes Truss has said she wants to scrap.
One concern among political observers is that she would lend government money to energy firms, who would then pay it back by putting it on customers’ bills over the next decade – the original scheme proposed by energy suppliers. “[It’s] not a freeze, it’s a loan,” said Ed Davey, the Liberal Democrat leader, of the rumoured plan.
The idea of “lower bills now, higher bills in the future” is a “nightmare”, tweeted Giles Wilkes, a former adviser to Theresa May who worked on the energy price cap policy. “Repaying £100bn over 15 years, interest rate 4 per cent requires £9.5bn a year – about £380 per household,” he calculated.
If the idea is lower bills now, higher bills in the future:— Giles Wilkes (@Gilesyb) September 6, 2022
Repaying £100bn over 15 years, interest rate 4% requires £9.5bn a year -about £380 per household.
That is enormous. Also, open to real gaming risk. Exits, new entrants ... Lobbying by export-exposed. Nightmare. pic.twitter.com/jbb96unB88
However, the Sun has reported that this won't be the form the plan takes, with the cash instead coming out of general taxation. Since Truss has committed to cut taxes but also to avoid austerity, that suggests the money will instead simply be added to the government debt. Her hope would no doubt be to grow the economy and therefore reduce the debt over time. We’ll find out more when the full announcement is made today (Thursday).
[See also: What would energy rationing in the UK look like?]