Ed Davey calls for halt to energy price cap increase to avoid ‘catastrophe’

Exclusive: Lib Dem leader says new PM should let government pay £36bn cost in new ‘energy furlough scheme’

Liz Truss or Rishi Sunak should cancel the £1,400 energy price cap increase in October in a new “energy furlough scheme” and government should absorb the £36bn cost of the hike, the leader of the Liberal Democrats has said.

Ed Davey said neither candidate appeared to have any policies that grasped the magnitude of what could happen this autumn. “We are facing a catastrophe this winter, a drop in living standards unlike anything we have seen in my lifetime,” he said.

Truss has previously said she would not give people “handouts” in the autumn despite the rises, though she has promised measures including cancelling the national insurance rise and cancelling green levies on energy bills.

The stance has alarmed a number of Conservative MPs, and new polling for the Lib Dems found that almost half of voters said they planned to spend less on food this winter because of inflation and energy prices. That figure does not significantly drop for Conservative voters: 41% said they would spend less on food.

Davey said his proposed intervention was costly and radical but was the only measure that would save many families from dire poverty this winter. A quarter of those polled said they would not put their heating on this winter.

Davey, a former energy secretary, said it would cost £36bn over a year and that there should be a new, broader windfall tax imposed on oil and gas companies’ profits, with fewer exemptions. He said he hoped it could bring in as much as £20bn.

He said the government could also find money from additional VAT revenues from higher than expected inflation.

“It would mean a huge sigh of relief across the country,” Davey said. “We’ve looked at everything we possibly can and the only thing that cuts it is saying: this rise can’t happen.”

Lib Dems have termed the plan an “energy furlough” similar to the major intervention to pay salaries during the pandemic. “This price rise is another crisis – and you would spend less than 10% of what we did during Covid to prevent people suffering the worst social crisis in modern times,” Davey said.

“These rises hit poorer households twice as hard as richer ones. So this will help poorer households twice as much. It is dramatically progressive. And it is simple – it means you will have no one left without help, including those households where landlords may not pass on discounts.”

The price cap, which went up by £693 in April, is expected now to be about £3,400, an increase of 70%. Cancelling the rise would mean the energy bill for a typical household stays at £1,971 a year.

But the measure would be exceptionally costly and might need to be repeated with further rises, adding to the spending. Davey said he believed that could be avoided, calling it a “one-off investment to protect people from this particularly dramatic hit”, but said it was possible further measures could be needed.

Ed Davey.
Ed Davey. Photograph: Henry Nicholls/Reuters

Davey said fossil fuel giants could still afford another windfall tax due to massive profits. BP and Shell made £29bn in profits in the first six months of the year alone. Truss has said she opposes windfall taxes and would not impose any further similar measures.

As chancellor, Sunak announced a windfall tax in May which was intended to deliver £5bn with a “temporary, targeted energy profits levy” of 25% but with a 90% tax relief for firms that invest in oil and gas extraction in the UK.

Sunak has vowed to cut VAT on energy bills, a move backed by Labour, which has said it would also scrap the tax breaks for oil and gas companies.

Davey said there was no choice but to tax producers further. “This is a genuine windfall … It is incumbent on a government who believes in fairness to have a fair tax system. In our view that means taxing them properly and cancelling this price rise.”


Jessica Elgot Chief political correspondent

The GuardianTramp

Related Content

Article image
Sunak races to finalise cost of living response after energy bills warning
Measures could be announced as soon as Thursday as households face price cap rise of more than £800

Heather Stewart and Phillip Inman

24, May, 2022 @7:00 PM

Article image
Bold action needed now on energy bills, says Alistair Darling
Chancellor during 2008 banking collapse says ‘fiddling around with small measures’ will not be enough

Peter Walker Political correspondent

29, Aug, 2022 @11:12 AM

Article image
Truss to push ahead with low-tax economy despite calls for caution
Reports that prospective PM is also considering freezing energy bills this winter at a cost of up to £100bn

Peter Walker and Rupert Neate

04, Sep, 2022 @10:25 PM

Article image
Labour announces plan to freeze energy price cap with reinforced windfall tax
Keir Starmer says people won’t pay ‘a penny more’ and that plan would reduce inflation

Andrew Sparrow and Phillip Inman

14, Aug, 2022 @9:30 PM

Article image
Details of Cameron's cheap energy plan to be unveiled by Ed Davey

Ed Davey expected to make energy firms cut number of tariffs to four and put consumers on lowest one available to them

Patrick Wintour, political editor

20, Nov, 2012 @8:20 AM

Article image
Ed Davey interview: 'I'm not going to give up on renewable energy'
It's been quite a week for energy secretary Ed Davey – from Hinkley Point to Grangemouth, with big rows about energy profits and green taxes in between. Guess what ... he's loving it

Susanna Rustin

25, Oct, 2013 @7:00 PM

Article image
Ed Davey calls on Ofgem to investigate energy firms' gas profits
Energy secretary calls on regulator to 'think radically' and consider breaking up Big Six if they have overcharged

Sean Farrell and Jennifer Rankin

10, Feb, 2014 @6:36 PM

Article image
Economists demand urgent action on energy bills to avert ‘catastrophe’
Millions of vulnerable people will be harmed without radical policies to ease cost of living crisis, say experts

Larry Elliott Economics editor

24, Aug, 2022 @11:01 PM

Article image
Treasury preparing emergency cost of living options for next prime minister
Officials’ proposed measures include national insurance cuts and pause to green levies

Larry Elliott and Alex Lawson

01, Sep, 2022 @6:10 PM

Article image
Ed Davey urges big six energy firms to come clean on size of their profits

Energy secretary calls for more transparency from electricity and gas suppliers as deal on next-generation nuclear plants nears

Patrick Wintour, political editor

18, Oct, 2013 @7:57 PM