Help for consumers
Liz Truss has promised to freeze energy bills at an average of £2,500 a year for the next two years from 1 October under the “energy price guarantee”. This will replace the existing Ofgem energy price cap that was due to reach £3,549 from that date. The freeze includes the temporary removal of green levies on household bills, worth about £150.
The government said the measure will save the average household about £1,000 a year and is in addition to the £400 of support for all households announced by the former chancellor Rishi Sunak in May.
People who are on fixed-term tariffs are likely to receive a matching discount, after negotiations by the government with suppliers.
Households who do not pay directly for mains gas and electricity, such as those living in park homes, using heating oil or on heat networks, will not be worse off and said they would receive personal support through a separate fund.
Help for businesses
Businesses and public sector organisations will have a new-six month scheme offering “equivalent support”. The detail is limited but it is expected to be an intervention to subsidise the wholesale price of gas. After the end of the six months, there will be ongoing support for “vulnerable industries”. Truss’s spokesperson described vulnerable industries as likely to include hospitality such as pubs, but would not go further on what percentage of firms were likely to be classified as such.
A review will take place in three months’ time to consider whether the scheme should become more targeted.
New oil, gas and fracking licences
A licensing round will be launched as early as next week and is expected to lead to more than 100 new licences.
The moratorium on UK shale gas production is to be lifted. “This will enable developers to seek planning permission where there is local support, which could get gas flowing in as soon as six months,” the government said.
The government has decided to publish the British Geological Survey’s report into fracking, which was commissioned by the then business secretary, Kwasi Kwarteng, earlier this year. The study suggests “more drilling is required to establish data on shale resources and seismic impacts”, effectively reopening the door to an industry that has been on hold since 2019.
The government hopes to “continue progressing” in its mission to generate 24 gigawatts of power from nuclear by 2050. A dedicated body, Great British Nuclear, has been set up to attempt to achieve this aim.
Truss also announced a review of the government’s net zero strategy, under the “altered economic landscape”. The review is likely to raise alarm bells from environmental campaigners, but will be led by Chris Skidmore, who chairs the Net Zero Support Group of Conservative MPs and is a key proponent of meeting the targets.
Help for suppliers
The Treasury will work with the Bank of England to “address the extraordinary liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets”. The energy markets financing scheme, which is meant as a “last resort”, is designed to “enable stability to both energy and financial markets, and reduce costs for businesses and consumers”. It will open “by the end of October or sooner”. Energy companies have sought to secure their balance sheets amid fears they will have to buy their energy in advance in volatile wholesale markets.
Reforms to the structure and regulation of the energy markets are expected to be undertaken after a review of regulations.
Funding the support
The government will fund the scheme to reduce the unit cost of energy via increased borrowing, likely to exceed £100bn. However, Whitehall sources said estimates for the cost will not come until the chancellor’s fiscal statement later this month.
A new windfall tax on energy firms “would discourage the very investment we need to secure home grown energy supplies”, said Truss.
The government expects to be able to reduce the cost of the intervention in three ways: negotiating the long-term gas contracts; negotiating with renewable producers to reduce the prices they charge; and accelerating new sources of energy supply. Costs to the exchequer are also hoped to be reduced via a positive impact on gross domestic product, on tax receipts and household incomes.
But internally Treasury officials have warned the cost of doing nothing to save customers defaulting, and businesses and energy companies from collapsing would be far greater.
The Treasury is declining to outline the costs because of the volatility in the price of gas over the coming year, but sources suggested £150bn was at the upper end of predictions.
The Treasury will amend the Debt Management Office’s remit in the coming weeks, to account for the substantial extra borrowing after the mini-budget.
Reducing wholesale prices
An energy supply taskforce headed by Madelaine McTernan, who led the UK’s Covid vaccine taskforce, has begun negotiations with “domestic and international suppliers” to agree contracts that reduce the price they charge for energy.
The taskforce will also negotiate with electricity generators – including wind, solar and nuclear power producers, some of whom have made windfall gains from the rise in wholesale gas prices – to reduce the prices they charge. The talks follow proposals for a scheme where producers on renewable obligation contracts are encouraged to switch to contracts for difference.