Liz Truss staked her premiership today by announcing a £150 billion plan to stop Vladimir Putin’s blackmail and freeze energy prices for two years.
The PM acknowledged the “extraordinary” nature of her decision and assured MPs that the government is committed to maintaining household expenses at £2,500 per year until October 2024, which is less than half the amount that many had thought they would reach.
The majority of consumers shouldn’t notice much of a difference in their annual costs even with the £400 giveaway.
Ms. Truss acknowledged that the intervention is comparable to the reaction to Covid, but she insisted that the alternative is to do nothing and watch while the economy suffers severe harm.
She claimed that the ‘flaws’ in the UK’s decades-long energy strategy had been exposed by Russia’s invasion of Ukraine.
“Now is the time to take risks.” There are no free solutions to the world’s energy crisis, she said.
The government says households will save £1,150 on average over the next year as a result of the support – which will be implemented using central contracts with suppliers.
The fracking restriction will be immediately lifted, and a new age of oil and gas development in the North Sea will begin, Ms. Truss said in her declaration that reform is necessary to prevent the UK from finding itself in a similar situation again.
Gas from fracking wells might start to flow, according to Ms. Truss, who also wants the UK to become a net energy exporter by 2040.
A fund will be formed to support those who rely on heat networks, use heating oil, or live in park houses.
As a result of skyrocketing energy prices, companies will also get a package of assistance.
They will get “comparable” assistance in the wholesale energy market for at least six months.
Although there are few details available for this component, “vulnerable” industries may receive additional support after the initial phase.
The decision will end the uncertainty that has been weighing on millions of families.
Inflation in the headline CPI might be reduced by four or five percentage points as a result, reducing the need for the Bank of England to raise interest rates.
However, it might cost taxpayers £150 billion, more than twice as much as the furlough programme. When he presents an emergency Budget later this month, Chancellor Kwasi Kwarteng, according to Ms. Truss, will go into more detail about the expenses.
In order to negotiate long-term contracts that might lower the bill, a “energy task force” is being formed, modelled after the Covid vaccine task force.
In order to make sure the Net Zero 2050 goal is being met in a “economically efficient” manner, a study will also be conducted.
She said: ‘Decades of short-term thinking on energy has failed to concentrate sufficiently on safeguarding supplies – with Russian’s conflict in Ukraine revealing the weaknesses in our energy security and pushing rates upwards.
“I’m calling it quits on this.”
I am taking immediate action to support people and businesses over the next two years with a new Energy Price Guarantee and by addressing the issues’ underlying causes by increasing domestic energy supply.
‘Extraordinary problems demand for extraordinary solutions, ensuring that the UK is never in this circumstance again.’
Ms. Truss, though, is also setting up a confrontation with Labour by rejecting suggestions for a windfall tax on the enormous profits of the energy industry.
She told the Commons, “That would undermine the national interest by discouraging the very investment we need to secure domestic energy supplies.”
The prime minister promised to “open up additional supply in the North Sea,” and ministers are anticipated to grant another 130 drilling and development permits.
Production in the North Sea has already increased by more than 25% this year as record prices enable drilling in previously deemed unprofitable fields.
Additionally, Ms. Truss committed to carry through Boris Johnson’s proposal to approve a new generation of nuclear power plants.
Additionally, Whitehall insiders claimed she would lift the fracking ban in communities where it is popular, putting an end to a restriction put in place in 2019.
One source stated, “We need to start using every source of energy supply.” Because of how difficult the situation is, more politically acceptable supply choices are available.
Allies claim that even though she had advocated against offering universal “handouts” to address the gasoline problem, the magnitude of the increase in bills caused a change of heart.
Ministers acknowledge in private that because it will depend on the level of wholesale gas prices, the total cost of the energy package is “unquantifiable.”
The idea will entail the taxpayer essentially subsidising the price of electricity.
On an average bill, households will pay a set rate equivalent to around £2,500, with the government covering the difference between that rate and market rates.
According to the Centre for Policy Studies, maintaining the price freeze at the current price ceiling of £3,549 would cost £29 billion year.
If prices grow to the predicted $5,387 level in January, according to the think group, this amount will soar to £81 billion annually.
If gas prices stabilise at the £6,616 level they are predicted to reach in April, the price might soar to an astounding £116 billion.
Martin Lewis, a financial expert, welcomed the intervention even though he acknowledged that none of the possibilities were ideal.
He did, however, caution that some customers had already set their invoices at amounts greater than the current ceiling.
People who are on fixes should be permitted by all energy companies to convert to the new state-subsidized energy tariff without incurring any exit fees, Mr. Lewis told the BBC. “People have made a reasonable decision to fix their bills,” he said.
‘I hope that will be part of the regulations and if I do have a call with the minister later I will certainly be pushing for that.’
It is anticipated that a separate programme for firms would only be in place for one winter, but it might cost a further £40 billion.
Ms Truss has said there will also be help for the 1.5million homes in the UK that rely on heating oil, most of which are in rural areas.
Yesterday, the size of the rescue package sparked questions about the size of government borrowing and was partially to blame for a further decline in the value of the pound.
In an effort to convince the markets that the government would be “fiscally responsible,” Mr. Kwarteng spoke with major financial institutions.
He said that he will borrow tens of billions of pounds to lower taxes and assist with energy costs. But he said that authorities were determined to make sure that the UK’s economy expands more quickly than its debts.
In addition to pursuing an unapologetically pro-growth agenda, he said, “The Prime Minister and I are determined to take urgent action to support the British people today.”
‘We need to be decisive and do things differently. That entails steadfastly concentrating on how to increase corporate investment and the size of the British economy rather than how to disperse what is left.
Ministers have differing opinions on how much fracking may increase supply.
Some worry that a nation with the UK’s level of population density makes the contentious technology more dangerous. The United States, a nation with vast open expanses, has seen extensive application of the approach.
Mr. Kwarteng, who served as business secretary, had doubts about the speed and magnitude of the effect it would have on gas prices.
Even if we abolished the fracking prohibition tomorrow, it would take up to a decade to extract adequate quantities, and it would come at a terrible cost for communities and our priceless countryside, he wrote in The Mail on Sunday in March.
But today, Mr. Clarke declared: “If we want energy sufficiency, we have to look at every source, obviously new nuclear, more renewable, but we also want to look at technologies like fracking.”
The “important” aim of attaining net zero emissions by 2050, he stressed, was still the Government’s top priority, but he added that “in the short term, we need all types of gas as a transition fuel, and that is something the Prime Minister will be talking more about.”
Jacob Rees-Mogg, the new secretary of business, is a fervent supporter of the technology and is currently examining industry requests to loosen strict planning restrictions.
Fracking businesses are putting up proposals to provide reductions of up to 25 per cent off energy bills for those who live near to an active well.
With government assistance, the sector has informed the Treasury that the first shale gas could be warming homes in the UK in 12 to 18 months.