A cap on wholesale gas costs to freeze energy bills is being finalised by the government as it moves to shield households and businesses from soaring prices.
It is set to be the first major policy initiative of Liz Truss’s premiership as she takes over from Boris Johnson.
After months of criticism over a lack of additional help to manage the effects of energy-led inflation, which is at a 40-year high, details of the plan to tackle the cost of living are expected to be revealed on Thursday.
Johnson offers hint of his future – Politics Hub
Simon Clarke, chief secretary to the Treasury, was tight-lipped about the details of the plan when asked on Sky News to clear up reports of a £100bn energy price freeze that could last until the next election.
But he promised a “major intervention” on energy within the first week of Ms Truss being prime minister.
He added: “I can’t comment on the specifics of the package, but it will embrace both households and businesses.“
The early information comes with a big health warning as details are still being ironed out with generators and suppliers, but it seems the Treasury would effectively guarantee financing to cover rising wholesale gas costs for both households and businesses.
This would allow domestic gas and electricity suppliers to sell energy at around their current rate for the foreseeable future – possibly until the next election in 2024 – as wholesale prices continue to soar in the face of Russia’s war in Ukraine.
The plan would amount to a government-imposed price guarantee that would effectively replace the cap system for homes, according to the Bloomberg news service which put the cost of the cap for businesses at around £40bn over six months alone.
A cut in the green levy would help maintain average annual household bills at around £2,000, it added.
The overall plan would place the taxpayer on the hook for well in excess of £100bn over the next year, depending on wholesale price levels, it is understood.
The money, it is believed, would be recovered through bills but spread way into the future and possibly over decades.
The promise of additional help follows an unprecedented surge in the price of raw energy, exacerbated by Russia’s invasion in February.
Although the energy price cap shielded households from the worst of the early increases, leaving suppliers to shoulder the burden, the price cap reviews and predictions of cap levels to come have become a nightmare scenario.
It was announced last week that the cap, which covers the vast majority of households, would rise 80% to an average annual total of £3,549 from October.
There is speculation that sum could exceed £5,000 next year.
Businesses, which are not covered by the price cap, have had to swallow rising gas and electricity costs much earlier, exposing them to bills that are unsustainable risking jobs and further inflation as they pass on costs to customers.
It is understood that firms, though not necessarily big business, will receive additional help to mitigate the energy increases already seen.