Labour’s plan to tackle the energy bills crisis could end up costing £60 billion, leading economists said on Monday.
The Institute for Fiscal Studies said the cost of the proposal could eventually double from Labour’s estimate of £30 billion over six months.
It also warned of a potential multi-billion-pound hole in funding for Sir Keir Starmer’s plan to freeze the domestic energy price cap at its current level of £1,971 from October to April.
But the IFS added that Labour had done more than the Government or either of the Tory leadership candidates in detailing proposals to stop millions of families being hit with energy bills rising to more than £3,500 in October before possibly smashing through the £4,200 level early next year.
Sir Keir, who has faced criticism for not building a bigger Labour poll lead given the Government’s woes, said that Britain was in the grip of a “national emergency” due to energy bills sky-rocketing following Vladimir Putin’s invasion of Ukraine.
He took to the airwaves this morning to lay out Labour’s £30 billion plan. But IFS director Paul Johnson said: “They would want to do that, I would have thought, for at least a year, so you would be looking at £60 billion. You are looking at the cost of furlough. What it does achieve is to protect everybody entirely from the increases in energy prices. That is a very expensive thing to do.”
He also added: “It’s interesting to see that they have tried to provide costings of how they would pay for it at all because that is frankly more than we have had from the Government or the candidates for the premiership.”
Tory MPs, though, immediately attacked Sir Keir’s plan as not properly costed. Labour’s blueprint aims to raise £8.1 billion by backdating the start of the windfall tax on oil and gas giants to January, taking into account their soaring prices and closing a loophole in the levy.
It argued it could raise £14 billion from other measures such as dropping the £400 energy rebate, and abandoning pledges made by the Tory leadership contenders — such as temporarily halting the “green levy” on fuel bills, which Foreign Secretary Liz Truss is proposing, or scrapping VAT on domestic fuel bills which former chancellor Rishi Sunak has promised. By keeping inflation down, which it said would peak at about nine per cent rather than the 13 per cent the Bank of England is forecasting, the party said it would reduce the Government’s debt interest payments by another £7.2 billion.
Mr Johnson said that there was “a case” for Labour’s proposed extended windfall tax. But he added that while its freeze of the energy price cap would keep inflation down in the coming year it would not do so over a longer period so would not raise the planned £7.2 billion. A Labour source admitted the £7.2 billion figure was dependent on further action being announced in April.
Sir Keir claimed his “robust and costed” plan to stop bills rising this winter would save the average household £1,000.
Ahead of a visit to Exeter, he said: “This is a national emergency. It needs strong leadership and urgent action.”
He told BBC Radio 5 Live: “We have a choice and this is really the political choice of the day. We either allow oil and gas companies to go on making huge profits, which is what’s happening at the moment. or we do something about it.”
But asked about the potential length of the freeze, he said the situation would have to be assessed in April according to the forecasts.
However, former Cabinet minister Brandon Lewis, who is supporting Liz Truss for the Tory leadership, slammed the Labour blueprint as an “unfunded proposal” which he branded “overarchingly a poor policy” and which he claimed would not resolve the economic crisis facing the country and “potentially creates bigger inflation and debt problems in the future”.
The ex-Northern Ireland Secretary argued that Ms Truss was “leading the way” on plans to tackle the energy crisis with tax cuts and she would have an emergency budget within weeks if she becomes Prime Minister in early September when Mr Johnson, who is currently on holiday in Greece, is due to leave No10.
Mr Lewis added: “The work at the moment that the Treasury are doing, the Chancellor and the Chief Secretary of the Treasury, both of whom are supporting Liz Truss, they are Liz’s team themselves, is looking at what more we can do to directly help people.”
Paul Goodman, editor of ConservativeHome and a former MP, who is backing Rishi Sunak, today said the country is facing a “winter of discontent” complete with strikes, supply cuts, possible blackouts and extortionate energy bills.
In an article for Conservative Home Mr Goodman said: “It became impossible for Sunak and Truss to carry on pretending that populist policies as scrapping VAT on household energy bills for a year (the former) or introducing a temporary moratorium on the green energy levy for two years (Truss) represented a coherent plan for dealing with the cost of living crisis.
“So it is that Sunak has fessed up to more direct payments for poorer people this winter, and Truss has been forced to concede that tax cuts wouldn’t reach many of them. At last, we are beginning to see the real colour of the candidates’ money. Which may mark the right moment to review both of them.”
