New prime minister Liz Truss has this morning unveiled the government’s plans to tackle the energy price crisis that is afflicting the United Kingdom. Truss presented her ideas as she opened a House of Commons debate on UK Energy Costs.
At the centre of the government’s package is an ‘energy price guarantee’. The guarantee is designed to ensure that the average household bill for normal energy usage will be capped at £2,500 per year over the next two years.
For the next six months, a similar guarantee was announced for public sector bodies, charities, and business. The government then provided details about its plans to continue supporting vulnerable sectors like hospitality, subject to a review that is expected to be completed within three months.
Truss also confirmed the establishment of a fund to provide similar support for those who rely on heating oil, park homes, or heat networks. Truss also announced that Northern Ireland will receive equivalent support, despite the lack of a functioning Northern Ireland Executive.
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The exact cost of the government’s proposals will depend on the future level of wholesale gas prices. The think tank the Centre for Policy (CPS) studies has estimated that the cost of the scheme could amount to £29 billion if prices reach the £3,549 envisaged by the latest price cap.
However that cost would rise to £81 billion if prices reached the £5,387 level that has been estimated for January 2023, and £116 billion if they hit the £6,616 level that has been forecast for April 2023.
By way of comparison, the furlough scheme which protected some 11.7 million jobs during the covid pandemic cost £70 billion. Total education spending across the UK in next year is currently budgeted at £105 billion.
Now that the support package has been announced, the political divisions in Westminster are now focusing their attention on how the energy price guarantees will be paid for.
In the Commons, Liz Truss once again ruled out introducing a windfall tax on energy companies, arguing that such a measure would “discourage the very investment we need to secure home grown energy supply”.
Sir Keir Sternmer, Labour leader, attacked this approach again. Although welcoming the government’s acceptance of the principle of a price limit, Starmer highlighted how ‘this support does not come cheap’.
Citing comments by the Chief Executive of BP that a windfall tax would not have deterred any of the company’s current investment projects, Starmer was keen to stress how the energy sector was now making profits that ‘it did not expect to make’.
By avoiding a windfall tax, Starmer said the government is ‘leaving profits on the table’, something which will result in the ‘bill being picked up by working people’.
Alongside the announcement of the price guarantee, the prime minister’s speech also focussed on the need to improve energy supply, with Truss committing to turn the UK into a net energy exporter by 2040.
In its drive to increase domestic energy capacity, the government is also looking to approve up to 100 new energy exploration licenses.
North Sea production is expected to have increased by more than 25% this year due to record prices making it feasible to drill in areas previously considered uneconomic. Truss also confirmed her intention to repeal the current ban on fracking.
Environmental campaigners have criticized the return to fracking. Georgia Whitaker, an oil and gas campaigner for Greenpeace UK, said: “Before the fracking moratorium, the industry had ten years of the government ‘going all out for shale’ and giving them all the support denied to onshore wind. In that time, the frackers produced no energy for the UK, but managed to create two holes in a muddy field, traffic, noise, earthquakes and enormous controversy”.