Liz Truss is said to be strongly considering freezing energy bills in response to spiralling prices if she enters No 10 this week.
The Foreign Secretary, who is widely tipped to win the Conservative leadership contest, has highlighted tax cuts as her top priority throughout her campaign, remaining tight-lipped on whether she would introduce a package of support for households, who face an 80 per cent rise in energy costs from October.
Reports in The Daily Telegraph and The Times on Monday suggest Ms Truss’s team is discussing plans for a gas and electricity price freeze with industry leaders, as they prepare a package on a similar scale in cost to the furlough scheme.
Here’s what you need to know.
What is being considered?
According to reports, some form of price freeze is being considered, which would prevent household bills rising beyond a certain level.
Last month, Ofgem announced that the average annual energy bill will increase from £1,971 to £3,549 in October – up 80 per cent.
The bleakest energy forecast to date predicted average annual energy bills could top £7,000 from April 2023.
Labour, the Lib Dems and the SNP have already called for a price cap freeze.
Under Labour’s plan, at a cost of around £30bn, the Government would guarantee loans to energy companies for six months, allowing them to keep bills frozen at just under £2,000.
The scheme would be in part funded by a stringent windfall tax on energy giants, which would be backdated to January, excluding current tax breaks.
The Times reports Ms Truss’s package could be on the scale of the furlough scheme introduced by then-Chancellor Rishi Sunak when the Covid-19 pandemic struck, while the Telegraph suggests the specifics of such a policy are still being debated.
She is likely to be keen to avoid any package resembling Labour’s too closely, or else face criticisms that she stole the opposition’s policy.
A senior Government source told The Times the package could cost “at least” £69bn, while Ms Truss herself did not deny on Sunday that the price of such as scheme could reach £100bn.
Ms Truss used an interview on the BBC to insist that she would within a week reveal fresh supports for struggling households, but repeatedly declined to spell out what those support measures might look like.
“Before you have been elected as prime minister, you don’t have all the wherewithal to get the things done,” she told the BBC’s Sunday with Laura Kuenssberg programme.
“This is why it will take a week to sort out the precise plans and make sure we are able to announce them. That is why I cannot go into details at this stage. It would be wrong,” Ms Truss said.
Could it work?
Progressive think tank the Institute for Public Policy Research (IPPR) said a price cap freeze would “save millions [of people] from debt and also fight inflation”.
Luke Murphy, associate director for climate and energy at IPPR, said: “These proposals would prevent soaring energy bills from pushing millions into debt and destitution, and hold down ever rising inflation which is a risk to the UK’s economic stability.
“This is the scale of intervention we need to see from the government, as well as stronger support for lowest income households.”
Freezing the cap at its current level would prevent an estimated 4.4m people being plunged into fuel poverty next month, according to National Energy Action.
Scottish Power, one of the UK’s largest energy companies, has expressed support for the proposal, while British Gas owner Centrica and Octopus Energy are also said to be in favour.
In August, Scottish Power’s chief executive, Keith Anderson, presented plans for a £100bn package to Business Secretary Kwasi Kwarteng, who is widely tipped to become the next Chancellor.
In similar fashion to Labour’s proposal, the cap would be limited to its current level, funded by state-backed loans from banks, however Scottish Power’s freeze would be for two years, rather than six months.
The loans would be paid back by consumers over 10 to 15 years, with no windfall tax being levied on energy companies.
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Derek Lickorish, chairman of pay-as-you-go energy supplier Utilita, claimed industry bosses have been calling for an energy price cap freeze “for some time”.
“We recognise its going to be very expensive but if we don’t the economy is going to crash and consumers won’t know what to do, they won’t know where to turn to for help
“We had customers in the middle of summer ringing us in a desperate situation. Phone calls have gone up by 140 per cent, they don’t know which way to turn.”
Rishi Sunak previously ruled out an energy price cap freeze if he enters No 10, reiterating his preference for measures which target the most vulnerable households.
Andy Mayer, of the Institute of Economic Affairs, a right-wing think tank, has also called on the Government to respond with targeted measures, warning that a price cap freeze would saddle taxpayers with significant long-term debt.
He told City A.M: “Freezing prices today means freezing people tomorrow. No Government can buck global energy prices for long. Pretending otherwise encourages waste and puts the cost on future generations.”
He added: “A focus instead on relief from high prices through targeted welfare and general tax cuts does not distort investment signals, ensuring, alongside supply-side reform, future resilience.”
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What does it mean for my bill?
If the price cap is frozen at its current level, energy providers would be unable to bill the average household energy more than £1,971 annually.
This figure is based upon what Ofgem estimates as the average household’s annual energy use – 12,000kWh.
If your household uses more than this, your bill could be higher than £1,971; if your household uses less than 12,000kWh, it could be lower.
It is currently unclear how long Ms Truss’s team plan to potentially freeze energy bills for.
Under Labour’s proposal, bills would be kept at their current level for six months from October. The party said it would assess whether it was appropriate to continue the policy next year, depending on the economic climate.
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