Liz Truss is new PM: what does that mean for energy prices?
Newly appointed Prime Minister Liz Truss is expected to announce new measures on Thursday 8 September to tackle the ongoing cost-of-living crisis.
The new Prime Minister has made it clear that she will establish new support for struggling households within a week of her election.
Updated 6 September: Speculation is mounting that Truss's government will propose an intervention totalling £90 billion. The funding for this seem likely to come from increased government borrowing or general taxation, rather than increased future energy bills.
A government source confirmed to the Press Association on 6 September that Truss's energy freeze is likely to put 'typical' household bills around the £2,500 mark - that's £500 more than they currently are, but still £1,000 less than Ofgem's October cap.
Help is also expected for businesses struggling with soaring bills, which are not covered by the existing energy price cap in England, Scotland and Wales.
The scale of the cost-of-living crisis is becoming clearer by the day. Citizens Advice reported a 50% yearly rise in people needing charity such as food banks and grants due to soaring living costs, and says it currently helps 'more than two people every minute with crisis support'.
Similarly, credit reporting agency Equifax revealed that around 2.7 million households were behind on their energy bills between April and June 2022.
Which?'s own consumer monitoring found in August 2022 that six in 10 households had to make an adjustment – such as cutting back on shopping, dipping into savings or borrowing – to cover essential spending in the past month.
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Will Prime Minister Liz Truss freeze the energy cap?
Truss hasn’t yet revealed any concrete plans, but it is thought that she will very soon announce measures that will borrow money to freeze energy bills at a level around £2,500 for a 'typical' usage household. As with the Ofgem price cap, the cap would be on the price of a single unit of energy, not a total household bill. So the actual amount you end up paying will depend on how much energy you use.
It's been suggested that such a scheme could cost as much as £100 billion, and be on a similar scale to the pandemic furlough scheme. It’s strongly expected that as part of this package, there will be some sort of energy bill freeze. Truss has promised an announcement on cost of living support later this week.
This could be done by freezing the wholesale cost of British-produced gas to reduce bills. Other suggestions are that Ofgem’s energy cap for consumers - the limit that’s set on how much energy suppliers can charge - could be frozen. Currently it's due to increase by 80% in October.
Should this happen, energy companies will find themselves with large wholesale bills to pay and opinion is divided on how this should be funded. Some experts have proposed a windfall tax on giant energy importers, while others believe the costs should be passed to consumers and spread out over many years of increased bill payments. Current speculation suggests the Truss government may draw on increased government borrowing or general taxation instead.
it will be crucial that Truss sets out plans to tackle the root cause of the energy crisis as well as offer immediate financial support.
Opposition parties and energy companies suggest varying energy action plans
Labour, the Liberal Democrats and the SNP have all proposed suggestions for a price cap freeze that would protect customers from a near-doubling of bills in October. Many energy company bosses, including those of Ovo, Scottish Power, British Gas, Utilita and Octopus, are also said to be in favour of an immediate freeze on consumer bills.
Suggestions vary for how this is to be funded. Labour leader Keir Starmer’s proposition would see the government guarantee loans to energy companies for six months, allowing them to keep bills frozen at their current levels. He suggests funding this in part by a strict windfall tax on energy giants.
Earlier in August, a Scottish Power proposal was criticised for providing greater financial relief to high earners than the lowest-income groups. A 10-point plan later published by Ovo proposes allowing energy companies to borrow from a government-backed fund and then using that to subsidise bills. This Tariff Deficit Fund would see everyone receive assistance, but higher earners would get less help the more energy they used, in a banded model.
Other suggestions include abolishing standing charges, increasing funding for debt advisory charities and abolishing the ‘prepayment penalty’ that means those on prepayment meters - most often low-income households - are subject to even higher rates than those paying by direct debit.
The ultimate decisions will come down to Truss's incoming team, who are said to have been working up their own plans over the past few weeks.
What is the Scottish government doing about the cost of living crisis?
Scottish First Minister Nicola Sturgeon will announce the Scottish government’s legislative plan for the year ahead on Tuesday 6 September, with a heavy focus on the cost-of-living crisis.
The plan will include existing Scottish cost-of-living measures including the Scottish Child Payment, the Carers Allowance Supplement and the Council Tax Reduction Scheme.
However, Nicola Sturgeon has pointed out that significant help regarding energy bills is reliant on the new Prime Minister. In a tweet following Truss's victory, Ms Sturgeon said: "[Ms Truss] must now freeze energy bills for people and businesses, deliver more cash support and increase funding for public services."
Potentially crippling future costs must be avoided
Rocio Concha, Which? Director of Policy and Advocacy, said: "The new Prime Minister’s top priority must be to bring relief to the millions of people who will face a dire financial situation and be left in the cold this winter due to higher energy prices.
"If the government does this by freezing prices then it must ensure this is funded in a way that ensures those on lower incomes are protected from potentially crippling costs.
"The government must also go all out to turbocharge the adoption of energy efficiency measures, such as home insulation.”
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