The UK government expects its much-anticipated package of financial support to help households and businesses to cope with the cost-of-living crisis to reduce the inflation rate by up to five percentage points.
Prime Minister Liz Truss on Thursday announced the Energy Price Guarantee, which will reduce energy bills for a typical household by about £1,000 ($1,148). The programme will be introduced on October 1 and run for two years.
It will mean the average UK household's energy bills are no more than £2,500 a year. Under the current domestic energy cap, households face average bills of £1,971 but this was set to rise to £3,549 in October — and forecasts have suggested it could hit as high as £7,700 by April 2023.
Similar support for businesses is expected to be unveiled in the coming weeks. The intervention is expected to curb the peak of inflation by “up to five percentage points” from the predicted peak.
“Today’s actions will deliver substantial benefits to our economy, boosting growth which increases tax receipts and gives certainty to business,” Ms Truss told the House of Commons. “This government is moving immediately to introduce a new energy price guarantee that will give people certainty on energy bills; it will curb inflation and boost growth.”
Economists have warned UK inflation could reach 18.6 per cent by the start of 2023, having already hit a 40-year high of 10.1 per cent.
Ms Truss became the new UK prime minister on Tuesday, after defeating Rishi Sunak to become the leader of the Conservative Party and replacing Boris Johnson in Downing Street.
“Decades of short-term thinking on energy [have] failed to focus enough on securing supply — with Russia’s war on Ukraine exposing the flaws in our energy security and driving bills higher,” Ms Truss said.
“I am ending this once and for all. I am acting immediately so people and businesses are supported over the next two years, with a new Energy Price Guarantee, and tackling the root cause of the issues by boosting domestic energy supply.
“Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again.”
A spokesman for No 10 Downing Street said the package of measures was estimated to cost “tens of billions” of pounds but declined to provide an exact figure.
The full cost of the plan will be laid out by Chancellor Kwasi Kwarteng at a later date.
The spokesman said ministers had no plans to introduce a public information campaign to encourage people to reduce energy use, rebuffing earlier reports.
The government is also determined to reduce Britain’s reliance on overseas gas and oil and to increase domestic production.
A new oil and gas licensing round is expected to be unveiled as early as next week.
The ban on fracking will be immediately lifted, a No 10 spokesman said on Thursday. Communities living near sited where the controversial practice is likely to take place are expected to boldly oppose fracking. No 10 said it would consider further reducing energy bills for such communities as an incentive.
The prime minister said the costs of energy support would be offset by increasing energy supply and setting up an energy task force. She likened the latter to the vaccines task force and said it was “already negotiating new long-term energy contracts with domestic and international gas suppliers to immediately bring down the cost of intervention”.
“We are also accelerating all sources of domestic energy, including North Sea oil and gas production,” Ms Truss said. “We will be launching a new licensing round, which we expect to lead to over 100 new licences being awarded.”
The plan is part of the Truss administration’s push to make the UK an energy exporter by 2040.
The government’s decision to lift the moratorium on shale gas production will open the door for developers to seek permission where there is local support. The government says gas could be flowing in these areas within six months, but critics have previously said it could take years.
The government also announced a review of policies to ensure the country is on track to reach the goal of achieving net-zero carbon emissions by 2050. Tory MP Chris Skidmore will lead the review, which has a deadline for the end of the year.
The programme will take effect in England, Scotland and Wales, with a similar initiative for Northern Ireland in the pipeline. The help in Northern Ireland will need to be in a different form because the energy market operates differently to that in the rest of Britain.
The package of help is in addition to the £400 payment to households set out by former chancellor Mr Sunak earlier this year.