Liz Truss has set out plans to freeze energy bills at an average of £2,500 a year for two years, as part of a package of support for homes and businesses that marks one of the biggest government interventions since the financial crisis.
In her first big act as prime minister, Truss said the government would fund the scheme to reduce the unit cost of energy through increased borrowing. The initiative is forecast to involve the transfer of £150bn in taxpayer funds to energy suppliers to make up the difference between what they pay for power in the wholesale markets, and the capped consumer price. Whitehall sources said official estimates would not come until a fiscal statement from the chancellor, Kwasi Kwarteng, expected later this month.
Truss will temporarily remove green levies worth about £150 a year on average from household bills. Her scheme will cover England, Scotland and Wales, but something similar is expected to follow in Northern Ireland.
Truss also announced schemes she said would increase energy resilience, including launching a new round of about 100 new oil and gas licences and lifting the moratorium on fracking for shale gas, as well as accelerating new sources of energy supply, including nuclear, wind and solar.
The prime minister said the average household would save £1,000 in total from October because of the price reduction, added on top of the £400 discount previously announced under Boris Johnson.
In a chaotic, much-interrupted speech to the Commons on Thursday morning, Truss said: “This government is moving immediately to introduce a new energy price guarantee that will give people certainty on energy bills, it will curb inflation and boost growth.
“This will save a typical household £1,000 a year. It comes in addition to the £400 energy bills support scheme. This guarantee supersedes the Ofgem price cap and has been agreed with energy retailers.”
For businesses and public sector bodies such as schools and charities, a sixth-month scheme will offer what was termed “equivalent support” to that for households, with a review in three months about how it could be better targeted.
However, Truss stopped short of asking consumers and businesses to cut back on their energy use amid fears over blackouts this winter. Some European governments have enforced energy rationing since Russia began cutting gas supplies.
She also ruled out paying for the scheme by extending a windfall tax on energy on the super-profits of energy suppliers.
Responding for Labour, Keir Starmer condemned the decision fund the entire bailout through more government borrowing rather than raising new taxes.
“The prime minister is opposed to windfall taxes,” he said. “She wants to leave these vast profits on the table with one clear and obvious consequence: the bill will be picked up by working people.”
He also condemned a lack of action on insulating homes, and the focus instead on oil and gas, saying “doubling down on fossil fuels is a ludicrous answer to a fossil fuel crisis”.
Starmer said: “I’m afraid fracking and a dash for gas in the North Sea will not cut bills. Nor will they strengthen our energy security. But they will drive a coach and horses through our efforts to fight the looming climate crisis.”
The decision to renew fracking is likely to be controversial. The practice was stopped in 2019 after concern about the extent of earth tremors caused.
A British Geological Survey report into fracking, which was commissioned by the then business secretary, Kwasi Kwarteng, earlier this year, suggested “more drilling is required to establish data on shale resources and seismic impacts”.
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 chaired by Chris Skidmore, who chairs the net zero group of Conservative MPs and is a key proponent of meeting the targets.
Truss told the Commons that “decades of short-term thinking” had failed to secure energy supplies, something she said had been exposed by Russia’s invasion of Ukraine.
“I’m acting immediately so people and businesses are supported over the next two years, with a new energy price guarantee, and tackling the root cause of issues by boosting domestic energy supply.”
Under the scheme, Truss pledged that households that did not pay directly for mains gas and electricity, such as those living in park homes or on heat networks, would not be worse off and said they would receive personal support through a separate fund.
Businesses and public sector organisations were to be offered a new six-month scheme of “equivalent support”, which is expected to be an intervention to subsidise the wholesale price of gas, but limited details were given about that scheme. Treasury officials expect the intervention to reduce predicted inflation by four to five points, which they said would reduce the cost of servicing debt.
A joint scheme between the Treasury and the Bank of England will offer £40bn of loans to energy suppliers to protect them from soaring wholesale costs.
In an echo of the Covid support provided for businesses, firms will be able to access capital to insure against price swings. Suppliers are concerned they face a “Lehman Brothers moment” as huge capital requirements stretch their balance sheets. The plan is intended as a “last resort” aimed at stabilising the market, the government said. Companies applying will have to prove they are in “otherwise sound financial health” and agree to certain conditions.
The government is also examining the scope of a review into reforming the regulation of energy markets as well as efforts to improve energy efficiency.