Keir Starmer increased the pressure on the prospective Conservative prime ministers by proposing a £29 billion proposal to freeze energy rates for six months, amid concerns that he is chasing fantasy economics.
As he returned from vacation, the leader of the Labour Party praised his ‘strong’ measures, emphasizing that the British people must be allowed to bear the weight of spiraling costs.
He proposes keeping the energy price ceiling at its present level of $1,971 rather than allowing it to go to $3,500 in the fall and even higher in the following year.
Labour said that the $29 billion scheme is fully financed, would save each family around $1,000, and would even reduce inflation. It would be financed by expanding the scope of the windfall tax on oil and gas companies and retroactively applying it to May.
Senior Tories, however, have deemed the proposal infeasible since energy companies are facing rising wholesale prices and might go bankrupt if they are not permitted to pass on costs.
Respected IFS think-tank also expressed worry that the policy would have to remain in place for at least a year and might wind up costing as much as the massive furlough program during Covid – around £70billion. It warned that the reduced impact on inflation would be a “illusion” since the level of inflation would easily rise again when the government retreated.
Sir Keir underlined in interviews this morning that he was proposing a “very solid, robust, costed proposal.”
He stated on BBC Radio 5 Live: ‘Millions of people are already struggling to pay their bills, and we all know that across the country. The price cap is expected to rise from just under £2,000 to £3,500 and then £4,200 in October, and millions of people, millions of families are saying, ‘I can’t afford that.’
“We have a choice, and this is the political option of the moment.” Either we allow oil and gas firms to continue generating enormous profits, as is the case now, or we take action.
The Labour Party has said that action would be taken. We will halt these price increases and extend the windfall tax on the unexpected gains made by oil and gas firms. Therefore, we have a very solid, comprehensive, and costed strategy that will prevent these price increases this fall.
It also ensures that we can cut inflation from what may be as high as 13% to about 9%, since energy costs are a major driver of inflation.
Sir Keir said that one of the primary advantages of the program is that it reduces inflation, hence decreasing the cost of repaying government debt, which is proportional to price increases.
“We’ve got two Tory leadership candidates fighting each other in an internal battle, where their main argument seems to be how terrible their record in government has been, and a Prime Minister who’s a lame duck because he’s acknowledged there’s a problem with energy bills, but says “I’m not going to do anything about it.”
However, IFS director Paul Johnson referred to this as a “illusion” since inflation would rise much higher when the program expires.
He said that Labour’s estimate of £30billion for six months was likely unrealistic, since the policy would need to be in place for a full year to bring costs under control.
“You are considering the expense of furlough… this is a very costly plan.” Obviously, the result is complete protection for everyone,’ he told BBC Radio 4’s Today program.
Sir Keir said, in response to a question concerning the IFS’s concerns, that Mr. Johnson did not dispute that the proposal would lower inflation.
‘Of course, what he says is correct; what happens after April is significant because you must sustain anti-inflationary policies,’ he added.
“Of course, we’ll have to do that in April once we assess the situation, but he’s not arguing that our claim that our plan would cut inflation is false.”
Sir Keir has also defended himself against accusations from the left wing of his own party that he has abandoned his commitment to nationalization.
He said on BBC Breakfast, “The decision we’ve made in our strategy is that every single cent required for this plan would go straight into decreasing the costs of households throughout the nation.”
If nationalization is pursued, then money must be spent compensating shareholders, and in an emergency like this, a national emergency in which people are struggling to pay their bills, I believe that every single cent should go toward cutting those expenses.
Which is why we’ve decided to freeze prices across the board, raise the necessary funds from oil and gas businesses that have generated more profit than anticipated, and of course, our plan has the added bonus of reducing inflation by up to 4 percent.
Yesterday, energy minister Greg Hands told the BBC: “We must keep in mind that energy price increases are a worldwide phenomenon, caused by Vladimir Putin’s invasion of Ukraine.
‘We would have to find a mechanism to recompense individuals for successfully attempting to eliminate the price increase, which would eventually result in greater taxes.
“Therefore, I believe we must exercise some caution. Labour’s allegedly miraculous answer of just wishing it all away will have repercussions.’
Former minister Sir John Redwood, who is anticipated to be one of Liz Truss’ economics advisors if she becomes prime minister, said, “Companies need to be able to pay their expenses, therefore prohibiting price increases cannot work.”
He said that Labour’s strategy ran the danger of imitating Venezuela, where socialist government price restrictions on essential necessities led to shortages and illegal markets.
“If you want to see what occurs, go to a genuine communist nation,” he continued. They found that if prices are kept low, there is insufficient supply.
Mr. Redwood noted that more than thirty energy companies went bankrupt last year as a result of wholesale price increases and a price limitation that restricted their ability to raise rates, forcing taxpayers to keep them afloat.
Mr. Redwood said on Twitter, “If Labour believes the government can keep costs down by by adopting a legislation, why don’t they suggest we do the same for food, clothing, and several other items in addition to energy?”
“Attempting this will result in empty shelves.” The Venezuela model leads to poverty.’
Sir Keir’s declaration, made upon his return from vacation, is expected to put pressure on the Tory leadership candidates to come up with further measures, with 70 charities pressing them to increase the £1,200 committed to low-income families so far in order to escape a “catastrophe.”
Miss Truss prioritizes tax savings and opposes an increase in the windfall tax, while Rishi Sunak has pledged more support.
Whoever occupies No. 10 the next month might also execute a multibillion-pound deal purportedly drafted by Chancellor Nadhim Zahawi.
A technical tweak to how the price limit operates would result in a £400 reduction in energy costs.
Climate change czar Alok Sharma said, “For the incoming prime minister to give assistance with energy bills, especially for the most disadvantaged, ‘bazooka’ measures would be required; a peashooter approach will not suffice.”
Luke Murphy of the Institute for Public Policy Research, a research tank with a left-leaning bias, backed Labour’s proposal last night.
He said, “These plans will prevent surging energy costs from plunging millions into debt and homelessness, as well as halt the relentless rise of inflation…”
Labour stated that it would raise £14 billion by eliminating the £400 rebate for households this winter, £8 billion by closing a windfall tax loophole that gives energy giants a discount for investing in the United Kingdom, and the remaining £7 billion by reducing debt interest payments as inflation falls.