On just her second full day in office – but one which will likely be a defining moment of her premiership – Liz Truss has delivered the single biggest fiscal intervention ever made by a peacetime government in Britain.
For a leader who campaigned on a “no handouts” policy, the irony is lost on no-one. Yet “extraordinary challenges call for extraordinary measures” Truss declared today, as she unveiled her long-awaited support package to tackle spiralling energy costs.
As anticipated, the government will cap the average household energy bill at £2,500 a year, for the next two years. The £400 rebate, announced by Sunak in May, for all households will also continue – as will the £650 payment to those on benefits.
For businesses, Truss offered less clarity. She pledged to introduce a six-month cap on business energy bills, after which it will be reviewed, but declined to put a cost on the scheme, insisting it will provide “equivalent support.”
The price freeze will kick in at the start of October, when the household price cap was expected to soar from its current level of £1,971 a year to a record £3,549, before later skyrocketing to an estimated £5,400 a year by January.
Bills will undeniably be freezing at a high level: we’ve already seen the price cap rise 50%, meaning, even with with these new measures, roughly a quarter of families will still fall into fuel poverty this winter.
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But this freeze will make a huge difference: Truss insists that it will save the average household £1,000 a year.
The price difference will be covered by more borrowing, meaning taxpayers will be footing the cost somewhere down the line. Though Truss estimates that the plan will curb the rate of inflation by up to 5%, so a small part of the scheme will essentially pay for itself.
While the exact cost of the energy package will be properly set out by new Chancellor, Kwasi Kwarteng, later this month, the freeze is estimated to cost around £150 billion – over double the cost of furlough, and edging close to the annual NHS budget of £170 billion.
But there is a broad consensus, across party lines, that given the scale of crisis, such a significant government intervention was necessary.
The more divisive issue, however, is how best to fund it. Ed Miliband, Labour’s climate change secretary has labelled Truss “dogmatic” for refusing to impose a further windfall tax on oil and gas companies, insisting this would raise “tens of billions of pounds.” However, oil and gas companies are already subject to the 25 per cent windfall tax introduced earlier this year by Rishi Sunak, the former chancellor, which brings the total level of taxes levied on them to around 65 per cent when corporation tax and other taxes are included.
Others have questioned whether it would have been more sensible to offer targeted support to the vulnerable, instead of applying the cap across the aboard. That being said, according to recent estimates, the cost of living crunch has plunged one third of the population into debt, so defining “vulnerable” is no easy task.
What will be in happen in two years time is unclear. As President Putin’s war in Ukraine grinds on, and gas prices show no sign of plummeting, there is no end to the crisis in sight.
But Truss did also address longer term plans today to bolster Britain’s domestic energy supplies – including a controversial lifting of the fracking ban – measures she insists will “ensure that the UK is never in this situation again.”
As for the PM herself, while she has taken office at an unenviable time, the current crisis may also play to her favour politically. After weeks of inaction from a “zombie government”, Truss will gain credit for sweeping in to provided much-needed relief to tens of millions of families dreading the winter.