Keir Starmer heaped pressure on the would-be Tory PMs today by revealing a stunning £29billion proposal to freeze energy rates for six months – despite warnings he is chasing fantasy economics.
The Labour leader lauded his ‘strong’ measures as he returned after a break, arguing Britons must be allowed to carry the brunt of soaring costs.
He is advocating for the energy price ceiling to be preserved at its present level of £1,971 rather than allowing it climb to £3,500 as projected in the fall, and even higher next year.
Labour claimed the £29billion programme is fully financed, would save every family nearly £1,000 and even cut inflation.
It would be paid for by increasing the scope of the windfall tax on oil and gas firms and backdating it from May to January.
But top Tories have labelled the concept impossible since energy businesses are facing rising wholesale prices and might go insolvent if they are not permitted to pass on costs.
The reputable IFS think-tank has voiced worries that the policy would need to remain in place for at least a year, and may wind up costing as much as the large furlough plan during Covid – approximately £70billion.
It warned that the reduced impact on inflation would be a ‘illusion’ since the level would just spike again when the government pulled back.
In interviews this morning, Sir Keir said he was putting up a ‘very solid, comprehensive, costed strategy’.
He told BBC Radio 5 Live: ‘Millions of people are already struggling with their bills, we all know that across the country and the hikes that are expected for this October….from a price cap of just under about £2,000 to £3,500 and then £4,200 and millions of people, millions of families are saying ‘I just can’t afford that’.
‘We have an option and this is essentially the political decision of the day. We either let oil and gas firms to continue on generating big profits which is what’s occurring at the moment or we do something about it.
‘We the Labour Party have stated, we’ll do something about it. We will halt such price spikes and we will extend the windfall tax on the profits that the oil and gas firms didn’t expect to earn.
So we’ve got a really solid, robust, costed strategy here which will halt those hikes this fall.
Because energy costs are a significant contributor to inflation, it also ensures that we can lower inflation from what may potentially be 13% down to roughly 9%. This is an extra advantage that is very essential.
One of the key advantages of the plan, according to Sir Keir, is that it lowers inflation, which lowers the cost of maintaining the government’s debt, which is related to price increases.
We need to get a handle on the situation because the Prime Minister is a lame duck because he has admitted there is a problem with energy prices but says “I’m not going to do anything about it.”
At the moment, there are two candidates for the Tory leadership who are engaged in a kind of internal battle with each other.
The downward pressure on inflation, according to IFS director Paul Johnson, would just be an illusion, since it would only increase when the programme ended.
He said that Labour’s estimate of £30 billion for six months was probably too optimistic since the strategy would need to be in place for a full year in order to control costs.
You’re examining the expense of the furlough, which is a pretty costly plan. Of course, what it does is to completely safeguard everyone,’ he said on BBC Radio 4’s Today programme.
Additionally, Mr. Johnson said that the government’s current assistance will end up costing £12 billion more than originally anticipated due to rising gas costs.
When asked about the IFS’s concerns, Sir Keir said that Mr. Johnson was not contesting the plan’s ability to lower inflation.
Of course, he’s correct when he says that what happens after April counts because you need to keep up the inflation-reduction efforts, he said.
‘Of course we have to do that in April when we see the conditions,’ you may reply. However, he isn’t saying that our claim that our strategy would lower inflation is false.
Sir Keir also fended off accusations that he had renewed on his vow to nationalisation from the Left in his own party.
“The decision we’ve made in our proposal is that every single cent that is required for this plan would go straight to decreasing the bills of households throughout the nation,” he said in an interview with BBC Breakfast.
“If you choose the nationalisation route, money will need to be spent on compensating shareholders, and in a situation like this, a national emergency where people are having trouble making ends meet, I believe that the best course of action is for every single penny to go toward lowering those bills.”
“That’s why we’ve opted for this across the board, freeze the prices, raise the money for that from the oil and gas firms who’ve generated more profit than they were anticipating, and of course the extra advantage of our plan is that it cuts inflation by up to 4%,” the statement said.
The supporter of Liz Truss and former Cabinet member Brandon Lewis dubbed Labour’s energy strategy a “bad idea.”
He told Sky News: “I believe it’s generally a lousy strategy because it doesn’t address the difficulties in our economy and it may lead to future inflation and debt concerns that are worse.
“What we do need to do is assist people in having more money in their wallets to cope with the issues; lay out (a) systematic method that we can assist people, and that’s what an emergency budget would achieve,”
He claimed Ms. Truss was “leading the way” when asked on Times Radio about estimates that three-quarters of Tory supporters believe Labour’s proposal is the best approach to address the problem.
“Long before anybody else was beginning to speak about the same problems,” she said, “she was asking for reduced tax so people had more money in their wallets to cope with issues.” She also outlined her emergency budget preparations.
After giving off the impression that she could abandon her plans to provide £400 in bill assistance, Ms. Truss is now likely to stick with them.
A worldwide gas scarcity and local energy policy are to blame for the high UK energy costs, according to Andy Mayer, an expert at the Institute of Economic Affairs.
The supply situation would be prolonged by Labour’s policy to penalise businesses for making investments in the North Sea and maintain the prohibition on fracking.
We will be more vulnerable to costly imports, unable to assist Europe in reducing its dependency on Russia, and we will see smaller drilling-related tax returns.
It does little to address the windfall profits left over from Labour’s previous renewable energy strategy, which saw the majority of wind farms get a subsidy and high gas prices at our cost.
The pricing signal is destroyed, which encourages increased home energy usage rather than spending money on insulation and reducing use.
In contrast to providing assistance where it is needed via welfare or social tariffs, it helps those who can afford higher costs.
We must keep in mind that energy price increases are determined internationally and are a result of Vladimir Putin’s invasion of Ukraine, Energy Minister Greg Hands said to the BBC yesterday.
Trying to properly stop that price increase would need us to find a mechanism to recompense individuals, which would obviously result in greater taxes.
Therefore, I believe we need to exercise some caution. There will be repercussions from Labour’s allegedly miraculous approach to simply wish it all away.
If Liz Truss is elected prime minister, former minister Sir John Redwood, who is anticipated to be one of her economics advisors, stated: “Banning price hikes cannot work because firms need to be able to pay their expenses.”
He said that Labour’s proposal ran the danger of emulating the Venezuelan example, where socialist government price limits on staple items resulted in shortages and underground markets.
“Go to a genuine communist nation to see what happens,” he said. They learned that there isn’t enough supply if you attempt to keep the pricing low.
Mr. Redwood noted that more than 30 energy companies failed last year as a result of the rise in wholesale costs and the price cap’s restriction on their ability to raise rates, forcing taxpayers to pick up the tab.
‘If Labour believes government can keep costs down by by adopting a law why don’t they suggest we do that for food, clothing, and many other items as well as for electricity,’ Mr. Redwood said on Twitter.
“Try this, and your shelves will be empty.” The Venezuelan approach results in poverty.
After returning from vacation, Sir Keir made the announcement, which is likely to put the Tory leadership candidates under pressure to come up with new solutions of their own.
In addition, 70 charities have urged them to double the $1,200 already promised to low-income families in order to prevent a “catastrophe.”
Ms. Truss prioritises tax reduction and opposes a higher windfall tax, but Rishi Sunak has pledged to provide greater assistance.
Anyone who takes over No. 10 in a month might also execute a massive package purportedly put together on Chancellor Nadhim Zahawi’s directives.
Through a technical adjustment to how the price limit operates, energy costs would be reduced by £400.
Alok Sharma, the tsar of climate change, stated: “The incoming prime minister will need [to] deploy ‘bazooka’ measures – a peashooter approach won’t do’ to assist with energy expenses, especially to help the most vulnerable.”
Luke Murphy of the left-leaning research tank Institute for Public Policy Research last night endorsed Labour’s strategy.
These plans, he said, “would stop increasing energy costs from driving millions into debt and squalor, and keep down ever-rising inflation… ”
Labour said it would earn the remaining £7 billion via reduced debt interest payments as inflation declines, £8 billion by removing a windfall tax loophole that gave energy companies a discount if they invested in the UK, and £14 billion by eliminating the £400 rebate for homes this winter.