Energy bill

Government puts forward its plan to tackle the energy crisis

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 laid out her proposals as she opened a debate on UK Energy Costs in the House of Commons.

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.

A similar guarantee has been announced for business, charities and public sector bodies for the next 6 months.  Subject to a review which is expected to conclude within three months, the government has then detailed its plans to put in place further ongoing support measures for vulnerable sectors such as hospitality.

Truss also confirmed that a fund will be set up to provide equivalent support for those relying on heating oil, park homes, and heat networks.  In the absence of a functioning Northern Ireland Executive at the current time, Truss announced that equivalent support will also be provided to people in Northern Ireland.

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 package of support has been announced, political divisions at Westminster are now concentrating on how the energy price guarantee is to 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”.

This approach was again attacked by the Labour leader, Sir Keir Starmer.  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.

Alongside a renewed commitment to new nuclear generation, the government is looking to approve as many as 100 new energy exploration licences as part of its drive to boost domestic energy capacity.

North Sea production is said to have jumped by more than a quarter this year as record prices make it viable to drill in fields previously deemed uneconomic.   Truss also confirmed that she intended to reverse the current ban on fracking.

The return to fracking has been criticised by environmental campaigners. 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”.