New prime minister has honoured her pre-election pledge and announced a package of measures as cost of living soars
Help for consumers
Liz Truss has promised freeze energy bills at an average of £2,500 a year for the next two years from 1 October under the “energy price guarantee”, replacing the existing Ofgem energy price cap which was due to reach £3,549 from 1 October. The freeze includes the temporary removal of green levies on household bills, worth about £150.
The government said the measure will save the average household about £1,000 a year and is in addition to the £400 of support for all households announced by the former chancellor Rishi Sunak earlier this year.
Households who do not pay directly for mains gas and electricity such as those living in park homes, using heating oil or on heat networks will not be worse off and said they would receive personal support through a separate fund.
Help for businesses
Businesses and public sector organisations will be offered a new-six month scheme offering “equivalent support” with limited detail, which is expected to be an intervention to subsidise the wholesale price of gas. A review will take place in three months’ time to consider whether the scheme should become more targeted.
New oil, gas and fracking licences
A new oil and gas licensing round will be launched as early as next week, expected to lead to more than 100 new licences.
There will be a lift on the moratorium on the production of UK shale gas production. “This will enable developers to seek planning permission where there is local support, which could get gas flowing in as soon as six months,” the government said.
The government has decided to publish the British Geological Survey’s report into fracking, which was commissioned by the then business secretary, Kwasi Kwarteng, earlier this year. The study suggests “more drilling is required to establish data on shale resources and seismic impacts”, effectively reopening the door to an industry that has been under a moratorium since 2019.
The government hopes to “continue progressing” in its mission to generate 24 gigawatts of power from nuclear by 2050. A dedicated body, Great British Nuclear, has been set up to attempt to achieve this aim.
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 Support Group of Conservative MPs and is a key proponent of meeting the targets.
Help for suppliers
The Treasury will work with the Bank of England to “address the extraordinary liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets”. The energy markets financing scheme, designed as a “last resort”, is designed to “enable stability to both energy and financial markets, and reduce costs for businesses and consumers. It will open “by the end of October or sooner”. Energy companies have sought to secure their balance sheets amid fears they will have to buy their energy in advance in volatile wholesale markets.
Reforms to the structure and regulation of the energy markets are expected to be undertaken after a review of regulations.
Funding the support
The government will fund the scheme to reduce the unit cost of energy via increased borrowing, likely to exceed £100bn. However, Whitehall sources said estimates for the cost of the scheme will not come until the chancellor’s fiscal statement later this month.
Truss said a new windfall tax on energy firms “would discourage the very investment we need to secure home grown energy supplies”.
Reducing wholesale prices
An energy supply taskforce, led by Madelaine McTernan who led the UK’s Covid vaccine taskforce, has begun negotiations with “domestic and international suppliers” to agree contracts that reduce the price they charge for energy.
The taskforce will also negotiate with electricity generators – including wind, solar and nuclear power producers, some of whom have seen windfall gains from the rise in wholesale gas prices – to reduce the prices they charge. The talks follow proposals for a scheme where producers on renewable obligation contracts are encouraged to switch to contracts for difference.