UK PM Liz Truss Freezes Electricity Bills for Two Years

UK Prime Minister Liz Truss has announced that energy bills will be capped at £2,500 a year from October 1. The PM said in Parliament the phased-in measure will last for two years, saving a typical household around £1,000 a year and help cope with soaring living costs, UK media reported.

Energy bills will be subsidised, maintaining the current price cap of £1,971 for a typical family. Taking into account former Chancellor Rishi Sunak’s £400 universal discount, the total cap will be £2,500.The universal discount will be applied on bills between October 2022 and March 2023.

The government will also temporarily remove green levies from household bills worth around £150 a year on average. A six-month scheme for businesses and public sector organisations is to offer "equivalent support" over the winter. While limited clarity was offered on this scheme, it is reportedly to be an intervention to subsidise the wholesale price of gas. As for households who do not pay directly for mains gas and electricity, they would receive personal support through a separate fund.

Energy suppliers will be offered government-backed loans allowing them to sell energy at around their current rate for the foreseeable future until 2024. The overall support scheme will cover England, Scotland and Wales, with similar measures anticipated in Northern Ireland.

The bailout, purportedly worth up to £150Bln (approximately $180Bln), would be funded through more government borrowing, Truss stated. MPs were told that the cost of the energy plan would not be revealed until after a fiscal statement from the chancellor, Kwasi Kwarteng, expected later this month.

The opposition Labour Party had argued that a freeze on bills should be paid for through a windfall tax on the profits of oil and gas producers, but the proposal was dismissed by the PM.

Liz Truss stated in the House of Commons that “decades of short-term thinking” had failed to secure energy supplies.

Truss also announced schemes she touted as promising energy resilience, such as launching a new round of around 100 new oil and gas licences. She also revealed the government would lift the moratorium on fracking for shale gas. The controversial practice was stopped in 2019 amid concern about the earth tremors it caused. New sources of energy supply including nuclear, wind and solar, would also be accelerating.

The PM also underscored that under the “altered economic landscape” there would be a review of the government’s net zero strategy, led by Chris Skidmore, who chairs the net zero group of Conservative MPs.

The new proposals come after the UK energy regulator revealed on 26 August that the energy price cap would rise 80 percent to £3,549 per year for dual fuel for an average household from October 1, 2022. Some analysts have already speculated that sum could exceed £5,000 next year. Analysts had warned that without urgent government intervention, this sum could skyrocke t to £6,000 next year.

The costs of financing the support plan laid out by Liz Truss could be added to national debt, which is already above £3 trillion. According to cited UK Treasury officials, the announced measures could reduce predicted inflation by around four to five points, which, they maintain, would reduce the cost of servicing debt.

Opposition parties were quick to warn that the government's plan to ease the cost-of-living crisis without taxing energy companies would burden Britons with debt. Labour leader Sir Keir Starmer said the freeze would force taxpayers to “foot the bill”.