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Energy crisis: UK to cap domestic heating and electricity bills at £2,500 a year

The UK’s new prime minister, Liz Truss, says her government will cap domestic energy prices for homes to ease a major cost-of-living crisis.

Truss added she will also approve more North Sea oil drilling and lift a ban on fracking in a bid to increase the UK’s domestic energy supply.

She told MPs that the two-year “energy price guarantee” means average household bills will be no more than £2,500 (€2,883) a year for heating and electricity.

Bills had been due to rise to £3,500 (€4,036) pounds a year from October, triple the cost of a year ago. 

Prices are skyrocketing because of Russia’s war in Ukraine and the economic aftershocks of COVID-19 and Brexit.

“We are supporting this country through this winter and next and tackling the root causes of high prices so we are never in the same position again,” Truss told MPs.

Business and public institutions like hospitals and schools will also get support, but for six months rather than two years.

The government says the cap will cut the UK’s soaring inflation rate by 4 to 5 percentage points. Inflation hit 10.1% in July and has been forecast to rise to 13% before the end of the year.

The government hasn’t said how much the price cap will cost, but estimates have put it at over £100 billion (€115 billion). 

Truss has rejected opposition calls to impose a windfall tax on oil companies’ profits. The cap will be paid for out of Treasury funds and by borrowing.

The opposition Labour Party says that means British taxpayers will have to foot the bill.

Labour energy spokesman Ed Miliband accused Truss of rejecting a windfall levy “purely on the basis of dogma”.

The announcement, on Truss’s second full day in office, comes after a summer in which the government refused to say how it would respond. Former Prime Minister Boris Johnson was not able to make major decisions after announcing in July that he would resign. Truss, who won the Conservative Party contest to replace Johnson as leader, declined to announce her plans before she was in office.

Truss, a free-market conservative, has said she favours tax cuts over handouts, but has been forced to act by the scale of the crisis.

The invasion of Ukraine has caused an energy crisis across Europe. Russia has choked off the supplies of cheap natural gas that the continent depended on for years to run factories, generate electricity and heat homes

Britain imports most of its natural gas — though largely from Norway. not Russia — and so is vulnerable to shifts in global prices.

The UK has dramatically increased the amount of energy generated by wind power in recent years, and plans to build more nuclear power stations.

Truss also said she would issue scores more licenses for North Sea drilling and end a ban on fracking in Britain. Both measures will be condemned by environmentalists, who worry Truss may backtrack on the U.K.’s legally binding commitment to reduce carbon emissions to net zero by 2050.

Britain suspended fracking in November 2019, saying it wasn’t possible to accurately predict tremors associated with the drilling.

Truss says she supports the net zero commitment but it should not come at a huge cost to people and businesses

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