Truss freezes energy bills in new plan to tackle the cost-of-living crisis
Image credit: PA Media / Victoria Jones
The Prime Minister said her two-year plan - to be paid for by tens of billions of pounds of borrowing - will save the typical household around £1,000 from October.
Newly appointed UK prime minister Liz Truss has finally set out her plan to shield households and firms from the energy crisis by freezing energy bills, as had been expected, but also by removing the ban on fracking.
Under the government's proposed plans, energy bills will be frozen at £2,500 and businesses will be spared crippling increases until the next general election, scheduled to be held in two years' time. The measure will replace the existing energy price cap set by regulator Ofgem, which was set to increase to £3,549 come October.
Downing Street has refused to put a cost on the programme, but experts have estimated its cost at around £150bn which will have to be funded through increased borrowing, with the economic specifics of this to be unveiled during Chancellor Kwasi Kwarteng's emergency fiscal announcement later this month.
“This is the moment to be bold," Truss told MPs. "We are facing a global energy crisis and there are no cost-free options.”
The plan to freeze energy bills was first proposed by Labour Party leader Keir Starmer earlier this summer. Under Labour's proposal, the plan would have cost £29bn but would be paid for through an extension of the windfall tax on oil and gas firms. Starmer said Truss’ plan to fund the programme through borrowing is “driven by dogma” and will mean “it’s working people who will pay for that”.
Truss, however, said she would not “give in” to Labour’s calls for a new windfall tax.
Paul Johnson, the director of the Institute for Fiscal Studies think tank, criticised the lack of transparency, tweeting: “This is one of the biggest announcements in peacetime history and apparently we’ll be told how much (it costs) in a few weeks.”
The £2,500 “energy price guarantee” will apply in England, Scotland and Wales from October 1, with the same level of support made available to Northern Ireland, which has a separate energy market. The guarantee is based on the existing cap, plus the already promised £400 energy bills discount for all households.
In addition, green levies worth around £150 a year on average will be temporarily removed from household bills, lasting for two years, Truss said.
As expected, Truss also ended England’s ban on fracking - the process of extracting shale gas by fracturing rocks with high-pressure water - and outlined a goal of making the UK a “net energy exporter by 2040”.
Although the measure could see domestic shale gas production increase in less than six months, it has also faced harsh criticism from opponents who have long warned that fracking can cause earthquakes, water contamination, noise and traffic pollution. The ban was first imposed in 2019, after fracking caused severe tremors in Lancashire.
Earlier this year, the International Energy Agency (IEA) warned that no new oil and gas exploration should go ahead if the world is to meet its goal to curb temperature rises to 1.5C and avoid the worst impacts of climate change.
Truss' package also includes the launch of a new oil and gas licensing round, which is expected to lead to more than 100 new licences for fossil fuel extraction from the North Sea.
“I’m afraid fracking and a dash for gas in the North Sea will not cut bills," Starmer said. "Nor will they strengthen our energy security. But they will drive a coach and horses through our efforts to fight the looming climate crisis.”
Officials hope that the measure could curb the cost of servicing the national debt by reducing inflation by up to 5 percentage points from the predicted peak, with external forecasts estimating inflation could hit up to 15 per cent next year.
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