Energy bills support will cost £60 billion for the six months from October, Chancellor Kwasi Kwarteng has announced.
His speech to the House of Commons this morning announcing his mini-budget – dubbed the Growth Plan – started with the energy crisis, as he pointed to the growing concern around the cost of energy and reports that bills could reach as high as £6,500 next year.
“People need to know that help is coming,” stated Kwarteng, “And help is indeed coming.”
To mitigate this crisis, newly-appointed Prime Minister Liz Truss has announced three key support measures; the Energy Price Guarantee, the Energy Bill Relief Scheme and the Energy Markets Financing Scheme.
These were first announced on 8 September, with details released piecemeal since. The Energy Price Guarantee caps the unit price of energy at 34.0p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, for those on a standard variable tariff from 1 October.
Those on fixed tariffs at a higher rate than the new price freeze due to the recent energy price rises will see their unit prices reduced by 17p/kWh for electricity and 4.2p/kWh for gas from 1 October.
As such, the average household’s energy bills are set to be £2,500, saving them around £1,000 a year. This represents a significant drop from the £3,549 price cap for the Q4 period previously announced by Ofgem, which it supersedes.
Kwarteng today set out that this scheme is expected to cost £31 billion over its first six months.
The Energy Bill Relief Scheme provides support to businesses, which were facing energy bill increases of over 300%, according to research in early September.
It caps electricity and gas unit prices at £211/MWh and £75/MWh respectively for six months from October.
This intervention is expected to cost £29 billion, Kwarteng today announced, bringing the total cost of both schemes to £60 billion. The total cost of the Energy Price Guarantee – which will run for two years – is still predicted to be well over £100 billion.
“The House should note that the estimated costs of our energy plans are particularly uncertain, given volatile energy prices,” the Chancellor told the House of Commons.
“But based on recent prices, the total cost of the energy package, for the six months from October, is expected to be around £60bn. We expect the cost to come down as we negotiate new, long-term energy contracts with suppliers.
“And, in the context of a global energy crisis, it is entirely appropriate for the government to use our borrowing powers to fund temporary measures in order to support families and businesses.”
The costings are based on market prices taken from the ten workings days between 29 August and 12 September, after also taking green levies off of bills. Moving these green levies from consumer bills is expected to save £150 per household, with the cost taken on by the Treasury.
Labour and Green Parties criticise the lack of a windfall tax
As confirmed by Chancellor Kwarteng above, the cost of these schemes shall be met by borrowing, a move criticised by the opposition Labour Party amongst others.
The Labour Party has repeatedly called for a windfall tax on producers to help meet the cost of support during the energy crisis, with predictions that the oil and gas giants will make £170 billion in excess profits.
Speaking in response to Kwarteng’s mini-budget, Shadow Chancellor Rachel Reeves said the government was shielding the gigantic windfall profits of energy giants whilst pushing the costs of borrowing onto current and future taxpayers.
“The Chancellor has confirmed that the costs of the energy price cap will be funded by borrowing, leaving the eye-watering windfall profits of the energy giants untaxed,” she said.
“The oil and gas producers will be toasting the Chancellor in the boardrooms as we speak – while working people are left to pick up the bill. Borrowing higher than it needs to be, just as interest rates rise.”
Similarly, the Green Party called for a windfall tax of oil and gas majors to help meet the cost of the crisis.
“The cost of these Tory tax cuts will be higher interest rates, suppressed wages and cuts to vital public services. People and the planet will pay a very high price for this economic and environmental vandalism,” Green Party co-Leader Adrian Ramsey stated.
“We need a tax on super profits, the dirty profits of the fossil fuel companies and the super-rich.”
According to Kwarteng, the government’s energy plan will reduce peak inflation by around five percentage points, helping to tackle the cost of living crisis and wider economic concerns facing the UK.
“It will reduce the cost of servicing index-linked government debt and lower wider cost of living pressures. And it will help millions of people and businesses right across the country with the cost of energy,” said Kwarteng.
“Let no one doubt: during the worst energy crisis in generations, this government is on the side of the British people.”
Energy sector welcomes support for onshore wind
One particular bright spot in the Growth Plan for the renewables sector is a commitment to boost onshore wind.
“The government will unlock the potential of onshore wind by bringing consenting in line with other infrastructure,” the plan states.
“The UK is a world-leader in offshore wind, with 8GW of offshore wind currently under construction. By 2023 the government is set to increase renewables capacity by 15%, supporting the UK’s commitment to reach net zero emissions by 2050.”
Onshore wind is one of the cheapest forms of energy generation in the UK, but has been hampered over the last decade by planning constraints amounting to an effective ban.
“The ban on onshore wind – which around eight in ten people support – has been a major anomaly in British energy policy given it’s both cheap and popular with the public,” Jess Ralston, senior analyst at the energy and Climate Intelligence Unit.
“So a decision to lift the ban suggests the new government has listened to the experts and understands building more British renewables reduces our reliance on costly gas and so brings down bills.”
The pipeline of onshore wind projects has increased by 4GW over the last year, according to recent research from RenewableUK, growing from 33GW in October 2021 to 37GW. The vast majority of these – around 78% – are situated in Scotland, where planning consent has been more favourable than in England.
Chancellor Kwarteng highlighted in his speech that “our planning system for major infrastructure is too slow and fragmented”.
As such, he announced a plan for a new Bill in the coming months that will “unpick the complex patchwork of planning restrictions and EU-derived laws that constrain our growth.”
A number of infrastructure projects were identified as priorities within the Growth Plan, in terms of the green energy transition, this includes seven offshore wind projects, the Local EV Infrastructure Fund, the Rapid Charging Fund, and a range of nuclear, oil and gas, hydrogen and carbon capture and storage.