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Energy bills will be frozen at £2,500 for TWO YEARS, says Truss | Daily Mail Online
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
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'.
'This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options,' she said.
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.
Ms Truss said gas could be coming out of fracking wells within six months, and she wants the UK to be a net energy exporter by 2040.
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. Ms Truss said Chancellor Kwasi Kwarteng will flesh out the costs when he delivers an emergency Budget later this month.
An 'energy task force', modelled on the Covid vaccine task force, is being set up to negotiate long-term contracts that could bring the bill down.
There will also be a review to ensure the Net Zero 2050 target is being hit in an 'economically efficient' way.
She 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.
Ms Truss said the costs of energy support would be offset by ramping up energy supply and launching an energy taskforce.
Liz Truss told MPs: 'The way we are going to defray the cost of this intervention is first of all by ramping up supply.'
She also said the Government had created a new energy supply taskforce, and likened it to the vaccines taskforce, adding it was 'already negotiating new long-term energy contracts with domestic and international gas suppliers to immediately bring down the cost of intervention.'
Ms Truss added: 'We are also accelerating all sources of domestic energy, including North Sea oil and gas production. We will be launching a new licensing round which we expect to lead to over 100 new licences being awarded.'
The PM went on: 'We will speed up our deployment of all clean and renewable technologies including hydrogen, solar, carbon capture and storage and wind where we are already a world leader in offshore generation.
'Renewable and nuclear generators will move on to Contracts for Difference to end the situation where electricity prices are set by the marginal price of gas.
'This will mean that generators are receiving a fair price, reflecting their cost of production, further bringing down the cost of this intervention.'
Ms Truss said it was 'vital' for the UK to take steps to increase its domestic energy supply, adding on fracking: 'We will end the moratorium on extracting our huge reserves of shale, which could get gas flowing in as soon as six months – where there is local support for it.
'We will launch 'Great British nuclear' later this month, putting us on a path to deliver up to a quarter of our electricity generation with nuclear by 2050.'
She said the bailout as a whole would curb inflation by 'up to five percentage points'. The Bank of England had expected it to top 13 per cent this year.
Ms Truss told the Commons: 'Today's actions will deliver substantial benefits to our economy, boosting growth which increases tax receipts and gives certainty to business.
'This intervention is expected to curb inflation by up to five percentage points, bringing a reduction in the cost of servicing Government debt.
'Thirdly, I'm announcing today that with the Bank of England, we will set up a new scheme worth up to £40 billion 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.
'By increasing supply, boosting the economy and increasing liquidity in the market, we will significantly reduce the cost to Government of this intervention.'
Keir Starmer said the package would still see a price rise, whereas Labour's plan would mean 'not a penny more on bills'.
Sir Keir described the situation as a 'national emergency' and said Labour spent the summer 'fighting for a price freeze'.
Taking aim at Ms Truss, Sir Keir said many people 'said we were wrong' and 'they dismissed our call for support as handouts'.
He said the objections could not last and 'the Prime Minister had no choice', saying: 'So I am pleased there is action today and that the principle of a price limit has been accepted.
'But under our plan not a penny more on bills, under this plan, a price rise… But this support does not come cheap. And the real question before the House today… the political question, is who is going to pay?'
There was criticism from economists at the lack of detail on the scale of the government's commitment.
Carl Emmerson, deputy director of the Institute for Fiscal Studies, has said the Government's energy support package could cost more that £100billion in the first year alone.
'The cost will be very, very uncertain. It will depend on what happens to gas prices over the next two years, it will depend on whether this scheme is extended,' he told BBC Radio 4's The World at One.
'I would be surprised if over the next 12 months it didn't cost more than £100 billion.
'The uncertainty gets much greater the further out you go. This expires in two years' time. On current expectations, that will make it a very painful winter in 2024-25.
'I think that does open the question about whether this scheme will get extended or not, just as the (Covid) furlough scheme got extended and extended again and again.'
Businesses also complained that six months of support would not allow them to plan properly.
The owner of an online retail gift company has called the Government's six-month scheme for businesses amid the ongoing energy crisis 'short-sighted.'
Betsy Benn, 47, is worried about her business's use of electricity to make personalised gifts and already had plans to bring forward the company's production of Christmas-themed items to avoid the expected price rise in October.
'It's short-sighted to only give businesses a cap and a knowledge of six months of what their energy situation is,' Ms Benn, who is based in Cheltenham, told the PA news agency.
'If we fail, then there are four people who will suddenly be out of a job.
'Would they expect the Government to be able to run on a six-month plan? I don't think they would.
On the announcement, she said: 'It's good news for us as a business, but I'm just cautiously waiting to see what will happen (as) it just feels like the next 18 months is completely unpredictable in all sorts of ways for individuals and for businesses.
'What will happen in 18 months' time? It feels like a delayed pain.'
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.'
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.'
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.