Truss set to make £100bn energy plan making party 'uncomfortable'
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The energy bill price cap is due to rise to £3,549 a year for an average household, amounting to a staggering 80 percent increase since the start of the year, which could see families choose between heating their homes and other necessities over winter. Under Ms Truss’ reported new plans, it’s believed the new PM wants to avert the price hike with guaranteed financing to cover the difference, according to officials and briefed advisors.
Beating rival Rishi Sunak in the Tory leadership race with 57 percent of party member votes, Ms Truss said in her victory speech: “I will deliver on the energy crisis, dealing with people’s energy bills but also dealing with the long-term issues we have on energy supply.”
In the run-up to taking office, Ms Truss’ was touted to go “bigger than expected” with her plans for the new Tory Government.
A senior ally of Ms Truss previously said: “I think it will be a shock and awe moment.”
“Knowing Liz well, she’ll want a big bang package bigger than people expect and that won’t just be about energy, it will be about resisting Treasury orthodoxy. She’ll want to show the public she hears them.”
Although Ms Truss remains tight-lipped about the support package at present, what exactly is being speculated about her energy plans?
Proposed energy bill freeze plans
In a plan that could cost as much as £130billion according to policy documents seen by Bloomberg, Ms Truss reportedly plans to freeze the energy price cap at its current rate of £1,971 for the next two years.
Under Ms Truss’s plan, energy suppliers will be obliged to charge households the reduced rate for their energy by taking out Government-backed loans to subsidise the difference.
It’s believed a similar scheme may be used to limit the energy price increases experienced by small and medium-sized businesses, while bigger companies may be offered tax breaks to support them through the high price period – but this is also yet to be confirmed.
Writing in the Financial Times, Kwasi Kwarteng, tipped to be named chancellor by Ms Truss, said: “Families and businesses are feeling the impact across the United Kingdom and the world. In response, we have to be bold. That is what Liz Truss will be if elected as leader of the Conservative party and prime minister of the UK.”
He added: “We know households are worried, and decisive action is needed to get families and businesses through this winter and the next. They need certainty.”
However, this plan, paired with her pledges to cut taxes has left many questioning just how it will all be paid for.
Labour leader Sir Keir Starmer said: “There can be no justification for not freezing energy prices.
“There’s a political consensus that needs to happen. She needs to ask the question, how she’s going to pay for that? Labour made it clear, it needs to be a windfall tax on oil and gas companies.”
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How might the plan be funded?
The Government borrowing is expected to be paid back to the Treasury through a levy on customer bills over a period between 10 and 20 years.
Mr Kwarteng some “fiscal loosening” will be needed to help households through the winter.
The Treasury is allowed to suspend its fiscal rules when a “significant negative shock to the UK economy” takes place. However, Mr Kwarteng reassured markets this motion could be feasible for the UK, promising a “fiscally responsible” approach if and when doing so.
He said loosening fiscal rules would be: “absolutely the right thing to do in these exceptionally difficult times. The UK’s ratio of debt to gross domestic product is lower than any other G7 country except Germany, so we do not need excessive fiscal tightening.
“But I want to provide reassurance that this will be done in a fiscally responsible way. Liz is committed to a lean state and, as the immediate shock subsides, we will work to reduce the debt-to-GDP ratio over time.”
Some observers of the plan have warned it risks fuelling inflation and higher interest rates.
Paul Johnson, director of the Institute of Fiscal Studies, told the BBC: “Simply cutting taxes, cutting National Insurance contributions, for example, is not a strategy for growth”.
He said these measures, on top of the figures the government would have to spend to help with energy bills mean: “We’ll have not just extremely high borrowing in the short run but also additional inflationary pressure.”
Labour deputy leader Angela Rayner said it would be “unfair” for working-class people to bear the brunt of any energy bill freeze that is brought in by Ms Truss’s incoming government.
Ms Rayner told Good Morning Britain: “It sounds to me from the rumours and the briefings in the press that [Liz Truss] will bring in the energy freeze, which is what Labour has called for and that’s a good thing.
“But to make working people pay for it when the gas and oil companies have made bumper profits would be completely unfair.
“Therefore, the windfall tax on these companies, who have made extra profit than what they were expecting, is the right thing to do.
“I think many of the public can see that it’s a matter of fairness. People are struggling at the moment. These companies have made profit that they never expected to make and therefore that redistribution is really important as part of the package.”
Ms Truss’s team is said to have been working on a support package for energy bills “for weeks”, and an announcement on what they will do has been tipped to take place on Thursday.
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