Labour pushes for price cap freeze to tame cost of living crisis
Labour has waded into the energy crisis with £29bn proposals to ease household energy bills amid a deepening cost of living crisis.
Opposition leader Keir Starmer has proposed a freeze to the energy price cap ahead of winter, which is currently set at £1,971 per year.
He said families would “not pay a penny more” on their energy bills this winter.
The plan would be chiefly funded through dropping the £400 energy rebate and a vast expansion of the windfall tax on North Sea oil and gas operators.
Labour proposed to remove investment relief from the Energy Profits Levy and backdate the tax to January.
These measures would raise £14bn and £8bn respectively, while Labour is also forecasting that it can raise £7bn by reducing inflation with lower energy bills.
Starmer claimed his proposals would save the average household £1,000 over winter.
This follows similar calls for a price cap freeze from Scottish Power boss Keith Anderson and Liberal Democrat leader Ed Davey.
The Government unveiled a £15bn support package for households in May – with up to £1,200 per year savings for vulnerable energy users.
This was based on warnings from Ofgem that the energy price cap would climb to £2,800 per year in October.
However, there have been multiple forecasts since then suggesting energy bills will rise much higher this winter, with Cornwall Insight predicting that the price cap will reach £3,582 per year in October and exceed £4,000 per year in the winter.
It also expects energy bills to remain elevated into 2024.
Despite expectations of higher prices, the Government has not unveiled any further support packages.
With Prime Minister Boris Johnson departing from office, it is likely that any new measures will have to wait for the next Tory leader to be announced on 5 September.
Former Chancellor Rishi Sunak has suggested he will expand his previous support packages in line with higher bills, while Foreign Secretary and rival contender Liz Truss has called for tax cuts and a moratorium on green levies.
Labour proposals face industry scrutiny
While Labour has proposed sweeping plans, the Institute for Fiscal Studies (IFS) questioned Labour’s suggested funding the package.
The think tank’s director Paul Johnson argued that the party’s plan to cancel the energy price cap rise – if extended from the proposed six months to a year – would cost as much as the Covid furlough scheme.
It argued the cost of the proposal could eventually double from Labour’s estimate of £30b.
He told BBC Radio 4’s Today programme: “They would want to do that, I would have thought, for at least a year, so you would be looking at £60bn. You are looking at the cost of furlough. What it does achieve is to protect everybody entirely from the increases in energy prices. That is a very expensive thing to do.”
Johnson was also unsure it would ease inflation rates over time, presuming it was just a temporary subsidy.
Meanwhile, Andy Mayer, energy analyst at free market think tank the Institute of Economic Affairs, criticised Labour’s calls to beef up the windfall tax.
He warned it would discourage investment in the North Sea, which he considered essential to boosting domestic gas production and ensuring supply security.
Mayer said: “High UK energy prices are caused by a global shortage of gas and domestic energy policies. Labour’s proposal to punish companies for investing in the North Sea and continue a ban on fracking will extend the supply crisis. It will leave us more exposed to expensive imports, unable to help Europe reduce its reliance on Russia, and with lower tax returns from drilling.”
Utilita boss Bill Bullen told City PM he welcomed the “direction of travel” but argued that both the Conservative and Labour parties were “simply not targeted enough” in their proposals.
He said: “We’ve known for a long time a big price rise, which will hit the fuel poor and vulnerable the hardest, was on its way in October, yet there has been a lack of bold thinking. This has left millions of households worrying about how they will pay for future energy bills.”
Bullen argued that freezing average prices at the current level is still too high a level for the poorest.
Instead, he proposed a social tariff, funded by the Treasury.
He explained: “It’s a longer-term sensible solution and not a sticking plaster fix that might need to be administered again – at great cost – a matter of months down the line.”