Liz Truss has promised to cap the average household energy bill at £2,500 per year until 2024 in her energy relief plan announced today.
The proposal will see the average household save £1,000 compared to the previously scheduled price cap rise of 80% to £3,548 this October.
Under the new plan, businesses will receive equivalent support for the coming six months, after which continued support will be provided with a focus on vulnerable industries.
Analysts expect the energy relief plan to reduce inflation by up to 5% from its previously estimated figure.
“HM Government is acting to protect British households from the spiralling costs of energy. The Energy Price Guarantee (EPG) which will give people certainty with their bills,” said business secretary Jacob Rees-Mogg in a written ministerial statement.
“The EPG will apply from 1 October and will discount the unit cost for gas and electricity use. This guarantee, which includes the temporary suspension of green levies, means that from the 1st October a typical household will pay no more than £2500 per year for each of the next two years.”
“This will save the typical household £1000 a year. It comes in addition to the £400 Energy Bill Support Scheme.”
Labour advocates for windfall tax
However, Truss was met with criticism by Labour leader Keir Starmer for her refusal to introduce a windfall tax on energy companies.
Starmer said borrowing would increase due to the decision, and cited the £170 billion in windfall profits set to be accumulated by energy firms over the next two years.
“Every pound the government refuses to raise in windfall taxes … is a pound of extra borrowing. It’s that simple,” said Starmer.
Hargreaves Lansdown senior personal finance analyst Sarah Coles added: “The decision not to add more windfall taxes for energy companies is a controversial one. There will be plenty of taxpayers who feel they will be shouldering the burden of paying for this help alone, when the energy companies have broader shoulders.”
“Truss believes that this tax would put companies off investing in the UK – and investing in renewable energy that will provide part of the long-term solution to the problem. If that investment isn’t forthcoming, it remains to be seen whether this belief will still hold sway.”
Household borrowing to rise
Analysts warned household borrowing would rise dramatically in the coming year without further intervention from the government, with winter still set to bring a storm of misery for many across the UK.
“[One] in five people are borrowing more than they did this time last year, and anyone who has coped with rising prices by going into debt will eventually hit the wall – where their repayments are unaffordable or they exhaust their credit limit. For these people, a freeze at this level isn’t enough to protect them from a looming crisis,” said Coles.
“When pushed on whether there would be additional help for those who need it most, Liz Truss referred back to the lump sum cost-of-living payments coming this autumn and winter. However, these helicopter payments won’t necessarily go as far as the government hopes.”
“Citizens Advice said that after the first payment in July, the demand for food bank vouchers fell for just three weeks before returning to previous levels. People have been running up debts and putting off vital purchases, so it’s not necessarily enough to offset the higher cost of energy.”
A lower price cap is welcome news, however the policy doesn’t go far enough to cover the most vulnerable in the country by a long shot.
“For those people at the sharpest end of price increase, today’s announcement will be a huge disappointment. They needed a broader package of measures, providing meaningful support for the most vulnerable. Without it, a freeze will simply slow the pace at which things get much, much worse,” said Coles.