Truss energy bill freeze will not come cheap and economic effects are unclear
No handouts? Forget the promise of the Conservative leadership race; three days into her term as prime minister Liz Truss has unveiled one of the biggest-single packages of financial support for households in recent decades.
For a politician who sets great store by free market economics, not since the 1970s has there been an intervention on this scale in setting the prices consumers pay. This wasn’t though how team Truss branded the plan, instead calling it an “energy price guarantee” – not a fix, or a cap. And not a sniff of a new windfall tax to pay for it.
After weeks of waiting for Truss to tell the public how she would keep the lights on this winter, we are still in the dark about how much it will cost exactly.
The prime minister did not give any figures in her statement or explain how it would be funded. A price tag of £150bn has been mooted by government sources. But it will be left up to her new chancellor, Kwasi Kwarteng, to spell out the precise details in a “fiscal statement” due later this month.
Taking steps to freeze the average household bill at £2,500 a year for the next two years will not come cheap. Alongside £400 energy support payments for every household this year, as well as reversing the increase in national insurance contributions and scrapping a rise in corporation tax next spring, the costs of a Truss government will spiral higher still.
In promising a fixed price for consumers – the government will pay suppliers the difference between wholesale costs – taxpayers will also be exposed to the vagaries of the global energy market. As Vladimir Putin’s war in Ukraine continues, and with winter coming, there will be sizeable changes in the cost of oil and gas that will influence the ultimate price tag.
Havi
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