Energy bills for the average household will be frozen at no more than £2,500 and businesses will be spared crippling increases, as Liz Truss took action to shield Britons from the global gas crisis.
The new Prime Minister’s two-year plan will save the average household around £1,000 from October and protect billpayers from further expected rises over the coming months.
For businesses and other non-domestic users such as schools and hospitals, which have not been covered by the existing price cap, a six-month scheme will offer equivalent support.
After that there will be ongoing support for the most vulnerable industries, with a review in three months’ time to decide where the help should be targeted.
The plan will see the UK Government limit the price suppliers can charge customers for units of gas, replacing the existing price cap set by regulator Ofgem.
Using tens of billions of extra borrowing, Westminster will provide energy suppliers with the difference between the new, lower price and what they would charge were this not in place.
The Prime Minister told MPs: “This is the moment to be bold, we are facing a global energy crisis and there are no cost-free options.”
Under the current domestic energy cap, households face average bills of £1,971 but this was set to rise to £3,549 in October – and forecasts have suggested it could hit as high as £7,700 by April 2023.
The £2,500 “energy price guarantee” will apply in England, Scotland and Wales from 1 October, with the same level of support made available to Northern Ireland, which has a separate energy market.
The guarantee is based on the existing cap, plus the already promised £400 energy bills discount for all households, meaning costs will be similar to those faced today.
What is available for businesses and how is it going to be paid for?
A scheme for businesses, schools, hospitals, other public organisations and charities will 'offer equivalent support', but last for just six months.
More 'vulnerable' industries, including pubs and hospitality, could then receive longer-term support that will be set out later.
A review in three months will decide which sectors should receive ongoing help.
The guarantee on energy costs, which is aimed at saving families and businesses from financial ruin if bills continue to rise as predicted, will be funded by increased borrowing after Truss rejected calls for a windfall tax on oil and gas producers.
It will involve businesses having their energy costs capped at the same price per unit - or kilowatt hour (kWh) - that households will pay under the government's new plans.
The UK Government will wait until an emergency Budget this month to set out how much the vast intervention will cost, but estimates suggest it could be up to £150bn.
Truss said that a new Energy Supply Taskforce will negotiate with suppliers to agree long-term contracts to reduce energy charges.
Martin McTague, chair of the Federation of Small Businesses, has called on the government to fix the price per unit of energy for small enterprises amid the worst economic climate he has seen in the UK for 35 years.
Speaking on Sky News, he said: “The cash is running out, they know that in October something like 60% of businesses are faced with renewing their energy contracts, and for many of them that will be a disastrous new contract.
“The urgency of this can’t be overstated, what we’re hoping we see is that the price per unit of energy will be fixed and any of the shortfall will be picked up by government borrowing.”
As expected, Truss also ended England’s ban on fracking – the process of extracting shale gas by fracturing rocks with high-pressure water.
This could see domestic shale gas production begin in as little as six months, but will face heavy criticism from opponents who have long warned that fracking can cause earthquakes, water contamination, noise and traffic pollution.
She told MPs that fracking would only go ahead in areas where there was local support for it.
The government will also remove green levies, worth £150, from energy bills but continue to fund projects to boost renewables, having been lobbied by business groups to force energy providers to offer specific reductions on the unit price of the energy used by firms.
Truss said she wants the UK to be a net energy exporter by 2040.
“As a result of these steps on shale and on nuclear, and the acceleration of renewables, I am today setting a new ambition for our country.
“Far from being dependent on the global energy markets and the actions of malign actors, we will make sure that the UK is a net energy exporter by 2040.”
Truss said the Business Secretary will set out a plan “in the next two months to make sure we achieve this”.
Truss said she will launch two reviews, telling MPs: “Firstly a review of energy regulation to fix the underlying problems.
“Secondly, we will conduct a review to ensure we deliver net zero by 2050 in a way that is pro-business and pro-growth, and this review will be led by the member for Kingswood [Chris Skidmore].”
She also announced that with the Bank of England, the government will set up a new scheme worth up to £40bn to ensure that firms operating in the wholesale energy market have the liquidity they need to manage price volatility.
“This will stabilise the market and decrease the likelihood that energy retailers will need our support like they did last winter,“ Truss stated. “By increasing supply, boosting the economy and increasing liquidity in the market, we will significantly reduce the cost to Government of this intervention.”
Truss also said she would not “give in” to calls for a larger windfall tax to fund her energy support package.
The Prime Minister told the Commons: “I can tell the House today that we will not be giving in to the Leader of the Opposition who calls for this to be funded through a windfall tax.
“That would undermine the national interest by discouraging the very investment we need to secure homegrown energy supplies.”
Labour leader Sir Keir Starmer said under the Prime Minister’s energy plan, the bill will be picked up by working people.
He cited estimates that energy producers could make “£170bn in unexpected windfall profits over the next two years”, adding: “The head of BP has called this crisis a cash machine for his company, and households are on the other end of that cash machine, their bills funding these eye-watering profits.”
He said he wanted to see the windfall tax expanded, but said: “The Prime Minister… wants to leave these vast profits on the table with one clear and obvious consequence: the bill will be picked up by working people.”
The Labour leader continued: “She claims that a windfall tax will deter investment, that’s ridiculous, these vast profits are not the reward of careful planning, they are the unexpected windfall from Putin’s barbarity in Ukraine, so there is no reason why taxing them would affect investment in the future.”
Keith Anderson, chief executive of ScottishPower, said: “There is no denying the scale of this crisis has struck fear in the heart of families across the UK and Liz Truss and her team have moved fast with a package of support that offers certainty for longer on energy prices.
“Now we have an immediate solution for households the energy industry needs to lead a three-pronged attack to tackle the issue at source by weaning the country off fossil fuels, doubling down on cheap, clean renewables and, importantly, decoupling electricity prices from gas.”
Reacting to the announcement, the GMB union's national secretary Andy Prendergast said that it only scratches the surface of what is need for long-term energy security.
“GMB calls on ministers to move at speed - because the brutal truth is the UK’s energy infrastructure will become even more vulnerable during the next decade, as existing nuclear plants are taken offline.
“Time is running out to fix the mess that has left our country so underprepared and exposed.”
Scottish Licensed Trade Association managing director Colin Wilkinson said there wasn't enough detail on what ‘equivalent support’ will mean.
“This should have been a priority for Westminster months ago when experts were ringing alarm bells and warning of the juggernaut that was on its way.
“Hospitality businesses also urgently need a reduction in VAT and rates reduced or frozen.
“We’ve all read the reports this week that pubs could have to increase the cost of a pint to £15 or even £20 to survive over the winter – that’s untenable for both businesses and operators.”
Meanwhile, Scottish Tourism Alliance chief executive Marc Crothall pointed out that the proposed price cap of £2,500 is still an increase of 54% to households since the spring.
“Given the continued rise in inflation, consumers will continue to deal with financial insecurity and spending will decline, particularly within the tourism and hospitality sectors.
“There are multiple factors relating to this crisis which must be addressed and a number of fiscal levers which if applied immediately, would significantly ease the burden for businesses in our sector; VAT reduction on supplies relating to hospitality, accommodation and attractions, deferral of the Coronavirus Business Interruption Loan Scheme repayments and the Bounce Back loan repayments, urgent support for businesses struggling to secure new energy contracts and an immediate review of immigration rules to address the labour shortages within the sector.
“I look forward to the announcement of the detail of this initial six-month support scheme for businesses.“
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