Liz Truss to freeze energy bills at £2,500 a year average, funded by borrowing

Liz Truss will freeze energy bills at an average of £2,500 a year for two years from 1 October, and has pledged to tackle the root causes of the problems in the UK energy market through plans to increase supply, including the resumption of fracking.

The government will fund the scheme to reduce the unit cost of energy through increased borrowing. The cost is likely to be about £150bn, although Whitehall sources said estimates would not come until a fiscal statement from the chancellor, Kwasi Kwarteng, expected later this month.

The so-called energy price guarantee will limit the price suppliers can charge customers for units of gas. 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.

Energy price guarantee

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.

“Earlier this week I promised I would deal with the soaring energy prices faced by families and businesses across the UK,” Truss told the Commons. “And today I am delivering on that promise.”

She 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 guarantee, which includes a temporary suspension of green levies, means that from 1 October a typical household will pay no more than £2,500 per year for each of the next two years while we get the energy market back on track.

“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.”

How it will work

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.

Responding for Labour, Keir Starmer again castigated the decision to not extend a windfall tax on the unexpectedly high profits of energy suppliers to part-pay for the scheme.

“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. The government document setting out the energy plan said a delayed British Geological Survey report on the impact of the practice would be released on Thursday.

Economic interventions

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 who do 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.

The scheme was outlined to the Commons as a general debate, rather than a ministerial statement, as is usually the case for such announcements. Before Truss spoke, the Speaker, Lindsay Hoyle, said he was “very disappointed” that details of the plan had not been provided to MPs in advance.