Liz Truss’s energy bill freeze has virtue of simplicity – but the drawbacks are clear

theguardian.com:

No handouts, said Liz Truss – except, it turns out, for the one that will cost £70bn, £100bn, £130bn or virtually any large number you care to think of. That’s the point about freezing average bills for 28m households at £2,500, with yet-to-be-defined support for 5.6m businesses on top: the bill can quickly become enormous. You don’t know how high wholesale prices could go – and the other variable is how long the freeze is kept in place.

Still, policy beats no policy. A blunt price cap has the virtue of simplicity. It is easily understood, knocks a few percentage points off the short-term inflation rate (which should save several billion quid in payments on index-linked government debt) and may spare corporate carnage within the hospitality sector, for instance.

The drawbacks, aside from the surge in public borrowing, are also clear. A lot of financial support will go to households that could easily afford Ofgem’s soon-to-be-theoretical October price cap, which would give an annual typical bill of £3,549. Incentives to reduce energy consumption are therefore weakened, which in principle increases the risk of blackouts. But some version of a price cap is now in place in many European countries with a heavy exposure to gas. As we’re told constantly, and correctly, there is no easy answer.

But one hopes the Truss administration, or rather the civil servants, have the operational details nailed down. The retail energy supply companies are, in effect, being teed to be the delivery mechanism for a massive government intervention in markets. One can see at least two big challenges.

First: if the industry’s proposal for a giant “deficit fund” with accompanying loans has been rejected, then cash has to flow to the suppliers very