Liz Truss is expected to announce plans to freeze energy bills at about £2,500 a year – but is unlikely to claw back the cost through customers’ future bills, leaving the taxpayer to pick it up instead.
The £400 universal handout to be given to households this autumn is expected to be factored in, so the energy price cap would effectively be maintained at about the current £1,971 rate.
Conservative sources confirmed that wholesale gas prices could be capped, meaning the new prime minister’s plan would also help thousands of small businesses teetering on the brink of collapse.
The scheme, which could cost as much as £90bn, is expected to be paid for through extra borrowing, after Kwasi Kwarteng, the new chancellor, made the case for some “fiscal loosening”.
It suggests that Truss has rejected the leading proposal from the Treasury and energy firms to freeze bills and add the cost over the next few years to customers’ bills. Critics had warned it could be difficult to justify when energy firms were making huge profits.
The current energy bill price cap is £1,971 a year, rising to £3,549 as of 1 October. But the cap is due to be revised in January, with some analysts predicting it could top £5,000 a year.
Truss campaign sources say the new prime minister “understands” that people and small businesses are struggling and will need help to get through a tough winter.
But they cautioned that the plans, which were originally expected to be announced on Thursday but could yet slip to next week, could still change with “nothing nailed down” on the exact level of the cap.
Truss is also expected to announce a plan to address long-term energy security and supply to make sure the UK is not in a similar position every winter, rather than applying sticking plasters each year the energy crisis continues.
Labour has called for an energy price freeze, paid for by a windfall tax on oil and tax companies. But Truss has ruled out a windfall tax to cover the multibillion-pound cost.
Another Tory source claimed that Team Truss had been “going round the houses” with the Treasury on the energy plan, but was finally close to agreeing a deal. They added: “She hadn’t made her mind up yet and different people were trying to bounce her into their plan.”
An executive at one large supplier said: “At this point it’s all about the art of the possible. The government is keen to pull out some showstoppers which will make a real difference but it’s important they can be put in place quickly if they want to take action by October. Every day that goes by makes that harder.
after newsletter promotion
“We will need to communicate to customers clearly what is changing. Adding complexities drives more calls to the call centres, like we saw on the meter reading day [when energy suppliers’ websites crashed in late March]. Not every customer is the same, so there are lots of intricacies to consider.”
Another supplier said: “They are asking us for lots of information. They’re keen that a new initiative is not launched and then we turn around and say ‘this part of it doesn’t work’.”
Investec analyst Martin Young said: “Getting the new measures in place quickly will be paramount but they need to consider any holes. What happens to people who decided to fix at a price above where it will be frozen but below where prices were going to rise to in October?
“People on pre-payment meters have a higher cap. There is a moral question over whether they should really have to pay more if you’re freezing prices for everyone else.”
About 4.5 million domestic customers use energy prepayment meters, and many of them are on low incomes. Their price cap is typically about 2% higher than for direct debit customers.