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Energy bills will be frozen at £2,500 for TWO YEARS, says Truss

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Liz Truss rolled the dice on her premiership today unveiling a £150billion plan to freeze energy bills for two years and counter Vladimir Putin’s blackmail.

Admitting her action is ‘extraordinary’, the PM told MPs the government is committed to keeping costs for households at £2,500 a year until October 2024 – less than half the level many feared they would hit. Including a £400 handout most people should see little change from existing bills this year.

What is Truss proposing 

  • Energy bills will be capped at a typical £2,500 for households from October 1 for two years
  • That includes temporarily suspending green levies, but with £400 handout most people will see little change from existing bills this year
  • The government will pay energy suppliers the difference between what they charge consumers and what the price would have been 
  • Businesses will get ‘equivalent’ support for at least six months operated through the wholesale energy market 
  • The policy could cost the government £150billion, depending on moves in gas prices, meaning far more borrowing 
  • Ministers hope the plan will reduce the headline CPI inflation rate by between 4 per cent and 5 per cent  
  • Action to enhance longer-term energy supplies include lifting the ban on fracking, and issuing more licences for North Sea oil and gas   

Ms Truss conceded the intervention is on the scale of the response to Covid, insisting the alternative is to stand by and see the economy suffer massive damage.

She said Russia’s invasion of Ukraine had shown up the ‘flaws’ in the UK’s energy strategy over ‘decades’.  

The government says households will save £1,150 on average over the next year as a result of the support – which will be implemented using central contracts with suppliers.

However, Ms Truss also declared that there must be change to ensure the country is not in this position again – with the fracking ban set to be ditched immediately and a new era of oil and gas exploration in the North Sea.

A fund will be set off to prop up those who use heating oil, live in park homes or are on heat networks. 

There will also be a package of help for businesses facing catastrophe due to soaring energy costs. 

They will get ‘equivalent’ support for at least six months, operating through the wholesale energy market. Details of this element are limited but following the initial period ‘vulnerable’ industries could get further help. 

The move will lift the uncertainty hanging over millions of families. 

It could also cut headline CPI inflation rate by four or five percentage points, easing pressure on Bank of England to hike interest rates. 

But it could cost taxpayers £150billion – more than double the cost of the furlough scheme.

It will be accompanied by a review to ensure the Net Zero 2050 target is being hit in an ‘economically efficient’ way. 

said: ‘Decades of short-term thinking on energy has failed to focus enough on securing supply – with Russian’s war in Ukraine exposing the flaws in our energy security and driving bills higher. 

‘I am ending this once and for all. 

‘I am acting immediately so people and businesses are supported over the next two years, with a new Energy Price Guarantee, and tackling the root causes of the issues by boosting domestic energy supply.

‘Extraordinary challenges call for extraordinary measures, ensuring that the UK is never in this situation again.’ 

However, Ms Truss is also teeing up a clash with Labour by dismissing calls for a windfall tax on energy giants’ huge profits. 

‘That would undermine the national interest by discouraging the very investment we need to secure home grown energy supplies,’ she told the Commons. 

Liz Truss told MPs the government is committed to keeping costs for households at £2,500 a year until October 2024

Ms Truss leaving Downing Street to head to the House of Commons this morning

Ms Truss leaving Downing Street to head to the House of Commons this morning

Truss could dodge grilling by making energy bill announcement in ‘general debate’

Liz Truss looks to be using a procedural tactic to avoid intense questioning on her energy bills announcement in the Commons.

The PM is scheduled to lay out the plan during a ‘general debate’ rather than in a standard ministerial statement.

That could mean she just takes a few interventions from MPs during her speech, rather than fielding a slew of questions until the Speaker decides the House is satisfied.

In a round of broadcast interviews this morning, Levelling Up Secretary Simon Clarke said UK plc would suffer ‘enormous damage’ if the Government did not intervene.

But he batted away demands from Labour for a new windfall tax on huge profits being made by energy firms, that it claims could raise tens of billions of pounds. ‘The sun rises in the morning and Labour asks for more taxes,’ Mr Clarke swiped.

Mr Clarke told Sky News: ‘If we fail to act, if we don’t protect the economy against the shock of the size and scale we are talking about, then there is going to be enormous damage.

‘In these circumstances I think the country will say and I think markets will respect that this is the most sensible thing to do.

‘The Government is clear that a fiscally responsible approach sits at the heart of our plans but we cannot fail to respond to the magnitude of the moment.’

The decision to fund the package by increasing borrowing – at a time when interest payments on Government debt are rising – opened up a clear dividing line with Labour, which wants a freeze in energy bills funded by a levy on producers who have enjoyed bumper profits as a result of high global market prices.

Shadow minister Ed Miliband said the refusal to levy a windfall tax on energy companies’ excess profits has been made ‘purely on the basis of dogma’.

He told BBC Radio 4’s Today programme that it was wrong for Ms Truss to suggest a windfall tax would damage investment in the energy industry.

‘This investment argument is completely bogus; that it would have a damaging effect on business,’ he said.

Speaking ahead of the announcement last night, Ms Truss said: ‘I know families and businesses across the country are worried about how they are going to make ends meet this autumn and winter.

‘Vladimir Putin’s war in Ukraine and weaponisation of the gas supply in Europe is causing global prices to rise – and this has only made clearer that we must boost our long-term energy security and supply.

‘We will take action immediately to help people and businesses with bills but also take decisive action to tackle the root cause of these problems, so that we are not in this position again.’ 

Ministers face backlash over end of fracking ban  

Ministers are facing a major backlash over ending the fracking ban to ease the energy crisis.

Liz Truss is confirming that the moratorium in place since 2019 will be lifted in areas where communities support the technology.

Fracking firms are considering offering a 25 per cent discount on bills for local residents agree.

However, Labour has condemned the idea – and pointed out that many prospective sites are in marginal seats held by Tory MPs. 

The technique has been widely used in the US, a country with wide open spaces. 

But some senior Conservatives fear fracking is unsuited to a a country as densely populated as the UK. 

When he was business secretary Kwasi Kwarteng – now Chancellor – was sceptical about the speed and extent of the impact on gas prices. 

In March, he wrote in The Mail on Sunday: ‘Even if we lifted the fracking moratorium tomorrow, it would take up to a decade to extract sufficient volumes – and it would come at a high cost for communities and our precious countryside.’

But Levelling Up Secretary Simon Clarke said today: ‘If we want energy sufficiency we have to look at every source, including clearly new nuclear, more renewables but we also want to look at technologies like fracking.’

The PM confirmed she will ‘open up more supply in the North Sea’, with ministers expected to issue another 130 licences for drilling and exploration. 

North Sea production has already jumped by more than a quarter this year as record prices make it viable to drill in fields previously deemed uneconomic.

Ms Truss also vowed to press ahead with Boris Johnson’s plan to sign off on a new generation of nuclear power stations.

And Whitehall sources said she would lift the moratorium on fracking in areas where it has community support – ending a ban imposed in 2019.

‘We need to get going on every source of energy supply,’ one source said. ‘The severity of the challenge means more supply options are on the table and politically palatable.’

Although she had argued against providing universal ‘handouts’ to deal with the fuel crisis, allies say the severity of the surge in bills forced a rethink.

Privately, ministers acknowledge that the final cost of the energy package is ‘unquantifiable’ because it will depend on the level of wholesale gas prices.

The plan will involve the taxpayer effectively subsidising the price of energy. Households will pay a fixed rate equating to around £2,500 on an average bill, with the taxpayer bridging the gap with market prices. 

The Centre for Policy Studies estimates that funding the freeze would cost £29billion a year if prices stay at the £3,549 level set by the latest price cap. 

But the think-tank said this would increase to £81billion a year if prices rise to the £5,387 they are estimated to hit in January.

The cost could jump to a staggering £116billion if gas prices settle at the £6,616 they are forecast to hit next April.

Money saving guru Martin Lewis welcomed the intervention, although he said none of the options were perfect. 

However, he also warned that some consumers had already fixed their bills at levels higher than the existing cap. 

‘People have made a legitimate choice to fix their bills and what I would be calling for at a bare minimum is that anyone who is on a fix should be allowed by every energy company to switch to the new state subsidised energy tariff and they should be allowed to do that without any exit penalties for doing so,’ Mr Lewis told the BBC.

‘I hope that will be part of the regulations and if I do have a call with the minister later I will certainly be pushing for that.’

Under Truss' new plan to tackle rising energy costs, households will pay a fixed rate equating to around £2,500 on an average bill, with the taxpayer bridging the gap with market prices

Under Truss’ new plan to tackle rising energy costs, households will pay a fixed rate equating to around £2,500 on an average bill, with the taxpayer bridging the gap with market prices

A separate package for businesses could cost another £40billion, although it is expected to last for just one winter.

Ms Truss has said there will also be help for the 1.5million homes in the UK that rely on heating oil, most of which are in rural areas.

The scale of the rescue package raised concerns yesterday about the scale of Government borrowing, and was partly blamed for a fresh slide in Sterling.

Mr Kwarteng held talks with leading financial institutions as he scrambles to reassure markets that the government will be ‘fiscally responsible’.

He confirmed that he would borrow tens of billions of pounds to help with energy bills and cut taxes. But he said ministers were committed to ensuring the economy grows faster than the UK’s debts.

‘The Prime Minister and I are committed to taking decisive action to help the British people now, while pursuing an unashamedly pro-growth agenda,’ he said.

‘We need to be decisive and do things differently. That means relentlessly focusing on how we unlock business investment and grow the size of the British economy, rather than how we redistribute what’s left.’

Ministers are divided over the extent to which fracking could help boost supplies. 

Some fear the controversial technology is more fraught in a country as densely populated as the UK. The technique has been widely used in the US, a country with wide open spaces. 

As Business Secretary Mr Kwarteng was sceptical about the speed and extent of the impact it would have on gas prices. 

In March, he wrote in The Mail on Sunday: ‘Even if we lifted the fracking moratorium tomorrow, it would take up to a decade to extract sufficient volumes – and it would come at a high cost for communities and our precious countryside.’

But Mr Clarke said today: ‘If we want energy sufficiency we have to look at every source, including clearly new nuclear, more renewables but we also want to look at technologies like fracking.’

He insisted the Government remained committed to the ‘critical’ goal of achieving net zero emissions by 2050 ‘but in the near term we need all kinds of gas as a transition fuel and that is something the Prime Minister will be saying more about’.

New Business Secretary Jacob Rees-Mogg is a passionate advocate of the technology and is already examining industry demands to ease tight planning controls.

Fracking firms are drawing up plans to offer discounts of up to 25 per cent off energy bills for people who live close to an active well.

The industry has told the Treasury that, with Government support, the first shale gas could be warming homes in the UK within 12 to 18 months.

How will the new energy bill bailout work? 

What is Liz Truss planning?

Britain’s new PM has announced a freeze on average energy bills of £2,500. The freeze is more than £1,000 below the latest energy cap of £3,549, which is due to come into effect in October. Households will also still get a £400 rebate, a policy announced in the summer. It’s going to last two years.

How will it work?

Ministers will sign legal contracts with the energy suppliers requiring the firms to supply domestic customers with fuel at a fixed price. The taxpayer will then make up the difference between the fixed price and the market level.

Will businesses get support?

Yes. Ms Truss said that business will get ‘equivalent’ support – but it will only last for six months initially. After that it could be targeted to ‘vulnerable’ areas of industry.

How much will it cost?

Estimates of the total cost vary wildly and will depend on the wholesale price of energy. A Whitehall source said £100billion would be at the ‘top end’ of expectations, but ministers admit privately it could cost £150billion or even more if gas prices continue to soar.

How will it be paid for?

The huge cost is set to be paid for out of general taxation. Ms Truss has ruled out extending the new windfall tax on energy firms, saying it could hit investment in future supplies.

Will it reduce the risk of blackouts?

No. Experts have warned that the plan could increase the chances of power shortages this winter as consumers will have less incentive to cut consumption. With other European countries also considering price freezes and Russia threatening to further cut supplies, there are growing fears of potential blackouts if still weather conditions mean wind turbines cannot operate.

What is the long-term strategy?

The Prime Minister also unveiled plans for a radical increase the UK’s domestic energy supplies in a bid to make Britain less reliant on global markets. This will include a dash for gas and oil in the North Sea and a renewed drive to build more nuclear power stations. Ms Truss is also lifting the ban on fracking, potentially opening up huge new reserves of gas if communities can be persuaded to accept the controversial technology.

Will fracking be forced on local communities?

Fracking has been controversial and was halted in 2019 because of concerns about earth tremors. But the industry insists it is safe, and a recent technical study for ministers – which has yet to be published – is said to have opened the door to its resumption as long as environmental protections are put in place. Ms Truss and new Business Secretary Jacob Rees-Mogg are open to industry demands to relax tight planning restrictions on the technique. And fracking firms are planning to offer local people discounts of up to 25 per cent off energy bills in communities where shale gas is extracted.

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