Energy bills to freeze according to the new PM Liz Truss who announced a £150 Billion bailout package. The bailout is designed to freeze the domestic energy bill cap on typical households at £2500* for the next 2 years.
* Some household will use more energy and be billed more, so this is not a hard cap of £2,500 on all bills – it’s a cap on the average bill.
This is more than £1000 below the latest cap announced on 26th August of £3549 which was due to come into effect in October
It is understood that households will continue to get a £400 rebate which was announced in the summer, therefore reducing the overall cap back to almost the previous April energy price cap of approx. £1971 when combined. Government says that households will save an average of £1150 over the next year.
There is talks of action to provide longer term energy solutions by lifting the ban on fracking and more licenses for North Sea oil and gas as well as accelerating new sources of energy supply, including nuclear, wind and solar.
What was said?
Liz Truss 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.”
Liz 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.’
‘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.
How will it work?
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.
Legal contracts are expected to be signed between ministers and energy suppliers to require energy suppliers to freeze the price on domestic gas and electricity. The taxpayer will then make up the difference between the fixed price and the market level.
The energy bills freeze 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. A review is scheduled to take place in 3 months to evaluate.
The overall cost for the energy bills freeze for households and businesses could soar to more than £100 billion, which will be funded by borrowing.
The Government will wait until an emergency Budget this month to set out how much the vast intervention will cost, but estimates suggest it could be up to £150 billion.
It will be funded by extra public borrowing, paid for by taxpayers eventually. Labour and the SNP are calling for an increase in windfall taxes on the profits of energy companies to cover some of the costs.
Government forecasts suggest the “historic” intervention on energy will limit inflation by four to five points.
SMEs & Business support
Liz Truss said that businesses will get ‘equivalent’ support – but it will only last for six months initially. Businesses, hospitals and schools (which are not covered by the Ofgem Domestic Price Cap) will receive similar emergency support under this six-month scheme.
After that it could be targeted to ‘vulnerable’ areas of industry.
The government is proposing to operate this through the wholesale market, although details are not yet clear.
Will it reduce the risk of blackouts?
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 weather conditions mean wind turbines do not produce as much power as hoped.
The Proposal In Summary
- 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
- The policies will apply across Britain, but in Northern Ireland will take a different form as the energy system is structured differently
Whilst details on business support is limited, we will update as soon as we know. If you have any questions or would like to speak to the Robinsons team regarding your business, please get in touch.