Sat, 13 July 2024

Newsletter sign-up

Subscribe now
The House Live All
The future needs innovators Partner content
By Urban Splash
How clean energy will help deliver UK economic growth Partner content
Harnessing the untapped potential of biomethane Partner content
Press releases

Labour Pledges Energy Price Overhaul To Halt The Cost-Of-Living Crisis "At Source"

Keir Starmer said he'd extend the windfall tax on oil and gas firms (Alamy)

7 min read

Labour leader Keir Starmer has announced new proposals to freeze the energy price cap to stop households paying more when prices are set to rise this winter.

Starmer said the plan would mean people would not pay a "penny more" on their energy bills later this year under the plans, after forecasts predicted the average bill could rise to £3,500 in October and to as much as £4,200 in January.

He said Labour's proposals would stop the price increase "at source" rather than following the government's current plans to offer rebates on energy bills, a policy which has come under heavy criticism for doing little to offset the further increases in energy bills in recent weeks.

What is Labour's plan?

The £29bn package proposes an immediate freeze on the energy price cap – the maximum cost that an average household pays for their energy – at its current level of £1,971 for the next six months.

That would mean the estimated 15 million domestic energy customers who pay their energy by direct debit would see their bills frozen at their current level, while the estimated 4 million households who pay for energy through pre-payment meters would see their cap, which is often higher than other households, brought down to the same level.

The same price cap would also be introduced for the estimated 5 million customers who pay through 'standard credit', which helps spread the cost of energy bills across the year, but results in bills that are around 7 per cent higher than the current price cap.

Labour says that £29bn would then be handed to energy firms to ensure they can stay in business while removing the pressure from households to pay the increased costs.

Starmer said in totality the proposals would mean families "wouldn't pay a penny more" than they currently are, and suggested their strategy would be more efficient than the government's support package.

"Millions of families are really struggling to make ends meet, to pay their bills, and the price cap is going to go from just under £2,000 per household to £3,500 in October, then to £4,200 in January," he told BBC Breakfast on Monday. 

"There will be millions of people watching this who say: 'I just can't afford that increase'."

He added: "Instead of allowing the prices to go up and then trying to rebate people, we are going to cut the problem at source and stop those price increases."

How would they pay for it?

Labour argues that fixing the price cap at its current level would allow them to divert the costs of the government's planned £400 rebate which will go to all households in the autumn and the additional financial support schemes worth £1,200 to vulnerable households – saving an estimated £14bn which could be used to cover a large portion of the £29bn cost.

Energy firms are already going to be hit by an additional 25 per cent Energy Profits Levy – known most commonly as the windfall tax – from May next year, but Labour's proposals call for the start date to be brought forward to January, a move which they claimed would help raise a further £1.9bn.

To raise further cash from the levy, Labour has proposed scrapping the investment allowances included in the proposals, which give firms the chance to use their profits to reduce their tax burden if they use that cash to reinvest in new projects. Labour said removing the allowance would raise a further £1.5bn during the first year of the levy.

Labour's figures estimate the sustained higher rate of gas prices would raise around £4.7bn from the taxation of oil and gas profts, both through the levy and the current existing tax regime.

The party claimed their policy plans would also help drive down inflation by almost 3 per cent, resulting in a £7.2bn reduction in the government's interest payments on national debt.

What's the response been to the proposals?

Labour's plan has proven popular with voters. A snap poll from YouGov showed three-quarters of the public are supportive of measures to fix the price cap, including a similar percentage of 2019 Conservative voters.

But some of Labour's sums have come under scrutiny, with the Institute of Fiscal Studies saying it was an "illusion" that the policy would have a definitive impact on inflation and it's ability to save the Treasury the estimated £7bn on interest payments.

Senior Conservatives have seized upon the IFS analysis, including former cabinet minister Brandon Lewis, who criticised the short-termism of the policy.

"I think it is part of the benefit of being in opposition rather than government, you can pull ideas out there without necessarily having to worry about the medium and long term," he told Sky News on Monday. 

He said the six month cost of the plan could amount to as much as the entire furlough scheme announced during Covid. "The IFS have already outlined this morning where there could be an easy £7bn gap in the figures. It is effectively recycling taxpayers money," he added. 

The major focus on domestic energy bills has also faced criticism, with Labour announcing only a relatively modest £1bn fund to help energy intensive industries.

Critics of the plan have said it failed to protect other sectors, including schools, care homes and hospitals who are already struggling to cope with the rise in energy bills.

The plans come after Labour faced criticism over their lack of action over the cost-of-living, including questions over why Keir Starmer chose to take a summer holiday during the growing crisis.

But Starmer said that Labour had been working on the plans for months, and defended spending time with his family.

"I've also got another job that's really important, and that is I'm a dad, and I'm not going to apologise for going on holiday with my wife and kids," he told BBC Radio 4's Today Programme.  

"It's the first time we've had a real holiday for about three years."

What is the Conservative plan?

Prime Minister Boris Johnson has already committed to not taking any further action while he remains in Downing Street, saying he believes it would only be right for any major policy plans to be put forward by the next PM.

While there have been calls for Johnson to hold a meeting with leadership contenders Liz Truss and Rishi Sunak to thrash out a plan before the new prime minister is announced on 5 September, Downing Street confirmed on Monday that there are no plans for such a meeting. 

Johnson, who is on holiday in Greece this week, did attend a roundtable event with energy bosses and other ministers last week, but the meeting ended without any firm commitments. A government spokesperson said only that the two sides were committed to working together closely in the coming weeks.

That puts the pressure on Truss and Sunak who have faced growing calls to set out their plans should they become Prime Minister.

Sunak, who devised the current support package during his time as chancellor, has already said he would scrap the 5 per cent VAT added to energy bills – a change which would save the average household just £154 on their energy bills.

The former chancellor has also committed to expanding the current support packages, but has resisted setting out details on how much additional cash he could be prepared to offer to households.

Truss, meanwhile, has put forward a series of tax cutting plans which she claims will help families keep more of their cash. Those include reversing the rise in National Insurance contributions, and pausing the green energy levy added to people's bills – providing an estimated saving of around £150 per year.

Supporters of both candidates have defended their lack of firm proposals for tackling the cost-of-living, saying it was right that they waited until the end of the constest to review a range of options currently being drawn up in Whitehall.

But with increasingly grim forecasts on the expected rises, which households will start to see in their energy bills from the end of August, there is likely to be further pressure on the pair to announce their plans ahead of time to help alleviate people's concerns about how they will make it through the winter.

PoliticsHome Newsletters

PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe

Read the most recent article written by John Johnston - MP Warns That Online Hate Could Lead To More Real World Attacks On Parliamentarians

Engineering a Better World

The Engineering a Better World podcast series from The House magazine and the IET is back for series two! New host Jonn Elledge discusses with parliamentarians and industry experts how technology and engineering can provide policy solutions to our changing world.

NEW SERIES - Listen now