Truss"s energy plan "needlessly inefficient and expensive", says thinktank The National Institute of Economic and Social Research, another thinktank, has published its assessment of the energy price plan. It is a bit more critical than the IFS (see 2.56pm) and the Resolution Foundation (see 3.59pm). NIESR argued for a sliding price cap, where the cost of energy per unit would go up the more energy a person uses, and it says the government’s plan is “needlessly inefficient and expensive”. Max Mosley, an NIESR economist, said: The prime minister’s energy plan is appropriate in terms of scale and ambition, but is needlessly inefficient and expensive. Its untargeted nature makes the currently unfunded proposal wasteful, which will put pressure on public finances, and for an unknown amount of time. There are better options, including a variable price cap that would gone further in lowering the bills for the poorest and could have even paid for itself. Afternoon summary Liz Truss will freeze energy bills at an average of £2,500 a year for two years from 1 October, and has pledged to tackle the root causes of the problems in the UK energy market through plans to increase supply, including the resumption of fracking. My colleagues Jessica Elgot and Peter Walker have the story here. Liz Truss raised more than £420,000 in donations for her successful Conservative leadership bid, with the biggest single contribution made by the wife of a former BP executive. The prayers of the nation are with the Queen, the archbishop of Canterbury has said, as Britain’s leaders sent messages of support to the monarch, who was put under medical supervision after doctors became worried about her health. There is ongoing coverage of this story on our separate live blog. From ITV’s Robert Peston Truss"s energy plan "needlessly inefficient and expensive", says thinktank The National Institute of Economic and Social Research, another thinktank, has published its assessment of the energy price plan. It is a bit more critical than the IFS (see 2.56pm) and the Resolution Foundation (see 3.59pm). NIESR argued for a sliding price cap, where the cost of energy per unit would go up the more energy a person uses, and it says the government’s plan is “needlessly inefficient and expensive”. Max Mosley, an NIESR economist, said: The prime minister’s energy plan is appropriate in terms of scale and ambition, but is needlessly inefficient and expensive. Its untargeted nature makes the currently unfunded proposal wasteful, which will put pressure on public finances, and for an unknown amount of time. There are better options, including a variable price cap that would gone further in lowering the bills for the poorest and could have even paid for itself. My colleague Peter Walker has written a good analysis of the energy bills announcement. Here’s an extract. There are two main things to note about Liz Truss’s energy costs package. First, there is much detail to come. Also, it is an undeniable paradox that the first move of a prime minister surrounded by former Taxpayers’ Alliance staff is a £150bn state effort to fix commercial prices … An early Truss campaign interview with the Financial Times even airily dismissed the idea of “handouts”. Future campaign messaging was less clear, but still resistant to what was disparagingly referred to as “Gordon Brown economics”. As it has turned out, Truss has ended up doing more or less what Brown argued for in early August, a call for a freeze on prices that pre-empted not just the government but even Brown’s own Labour party. What changed was the sheer weight of political and, what you might even term moral, pressure. Truss was told by an array of experts that failure to take bold action would create a humanitarian disaster, with millions of households cold or hungry or both, businesses collapsing en masse, with the impact on the economy, and especially on public health inequalities, felt for a generation. And here is the full article. The Department for Businesss, Energy and Industrial Strategy has published a factsheet giving a tiny bit more detail of the energy plans announced by Liz Truss earlier. The section on support for business illustrates how vague the plans are at this stage. Full details of how the plan will work for households are not available, but the scheme for businesses is even more sketchy; it seems to be more of a wishlist than a plan, and, with a small typeface, you could literally print it on the back of the metaphorical fag packet. But the factsheet does include this chart, showing the notional savings for households, by housing type. Martin Lewis, the consumer champion, has a good video guide to the energy announcement that you can watch here. He thinks the chances are 50-50 that the government will also cut VAT on fuel bills in its emergency budget later this month. The Resolution Foundation thinktank has published its own assessment of the energy price guarantee. Like the Institute for Fiscal Studies (see 2.56pm), it welcomes this as a substantial intervention that will avert catastrophe for many people this winter, but one that will not stop them facing a very tough winter anyway. Both thinktanks stress that this does not offer a permanent solution. Torsten Bell, the chief executive at the Resolution Foundation, said: Households should be reassured that the winter ahead will not be as bad as feared, but policymakers need to recognise it will still be very tough indeed. The energy price guarantee does a good job of targeting those households facing the highest energy bills but, because it is not well targeted at those on low and middle incomes, comes with a large price tag. Liz Truss is asking future taxpayers to pick up a large and very uncertain bill on behalf of today’s energy bill payers, but declined to set out the cost of this huge package. It could end up surpassing the bank bailouts at the height of the financial crisis, with new support for households alone on course to total around £120bn. It goes without saying this can’t be the permanent answer to higher energy bills. The Resolution Foundation is also critical of the proposal to negotiate new, long-term contracts with low-carbon energy suppliers. Echoing the argument made by Ed Miliband (see 10.09am), it says this “risks delaying but locking in those windfalls, rather than removing them”. Union leaders have criticised the energy announcement from Liz Truss, saying that it should have included a windfall tax and that ministers should have acted earlier. Here is a roundup of some of their reaction. Frances O’Grady, the outgoing TUC general secretary, said: The prime minister is making the wrong people pay. She should have imposed a much larger windfall tax on profiteering oil and gas giants, and she should have required all firms getting help with energy bills to commit to no lay-offs for the lifetime of the help, to protect livelihoods. Sharon Graham, the Unite general secretary, said: It is quite frankly remarkable that the prime minister is asking workers to pay for massive energy company profits. The economy is broken and workers will see through this plan to boost profiteering yet again. I don’t think the irony escapes many. The reason we are held to ransom now by an over-reliance on non-domestic energy is that a Conservative government privatised our energy. Andy Prendergast, national officer at the GMB, said: The Tories have been in office for 12 years. Their failures to build new nuclear power stations, to protect and utilise our gas storage capacity and willingness to engage in political groupthink on domestic on and offshore resources, means we are playing catch-up in the race to defend ourselves against the global energy crisis. And Christina McAnea, the Unison general secretary, said: At long last, the government has acted. A bill freeze should have happened months ago. Instead, millions have endured sleepless nights terrified of the winter ahead. The companies raking in billions from soaring energy costs should pay their share. Another windfall tax would be fairer than handing huge debts to future generations. The Institute of Directors, which represents business leaders, has welcomed the government’s energy plan. But Jonathan Geldart, the IoD’s director general, said it was important to get an assurance that the plan would not weaken the public finances. He said: What we need now is an external reassurance that the scale of the intervention does not jeopardise the public finances. That’s why it’s crucially important that the Office for Budget Responsibility can swiftly produce its independent assessment of the impact on government debt and the wider macroeconomy. During first minister’s questions in the Scottish parliament Nicola Sturgeon welcomed the UK government’s “very belated action on energy bills” but said people would still have to pay more. She said: It does not represent a halt to the rise in energy bills. Average energy bills right now are just under £2,000, a cap of £2,500 will still see people pay more for their energy. People are still seeing soaring energy costs because of a broken energy market and the utter incompetence of this UK government. Conor Murphy, the Sinn Féin finance minister in Northern Ireland, said the UK government needed to provide “urgent clarity” as to how it will meet its promise to ensure that households in Northern Ireland get the same help as households in Britain. In a statement on the energy package he said: While the British government has said the energy policy changes will apply here, they have failed to outline what exactly that means. This will bring little comfort to individuals who are having to decide between heating and eating. Likewise, businesses trying to plan ahead for the winter months have no certainty as to when support will be forthcoming. The absence of a functioning executive will require a workaround. At a time of crisis for citizens, businesses and public services, this is completely unacceptable. I am calling for urgent clarity on how energy support will be delivered locally. The power-sharing executive in Northern Ireland is not functioning because the DUP says it will not participate until the government abandons the Northern Ireland protocol in its current form. Poorest homes will gain slightly less in cash terms, but most as proportion of income, from energy plan, says IFS The Institute for Fiscal Studies has published its assessment of the energy plan announced by Liz Truss today. It says that capping the average household energy bill at £2,500 a year would cost £60bn over the next year and that just over half of that would go to households in the top half for income distribution. But while poorer households will gain less in cash terms, they will gain significant more as a proportion of what they spend, the IFS says. “The energy price guarantee will save a household with typical energy use in the lowest-income tenth an amount equivalent to 14% of their household spending, compared to 5% for the highest income tenth,” it says. The IFS also says that, if other European countries subsidise bills in the same way, this could increase the risks of a bidding war. It explains. Prices are high because Europe faces severe gas shortages in the coming months. To correct the (large) mismatch between supply and demand, some users of energy – whether households, businesses or governments – will have to reduce their energy use. The less UK households reduce their energy demand, the greater demands placed on others. If other European countries also attempt to subsidise household or business use of energy, the result could be a bidding war that raises the cost of providing support in all countries. It also risks a situation where there is simply not enough energy to go round, which would require rationing or increase the risk of blackouts. Truss"s energy plan does not do enough to protect the poor, say charities Charities say Liz Truss’s energy support package will not do enough to protect the poorest families. Here is a roundup of reaction from some of the leading voices in the sector. Imran Hussain, the director of policy and campaigns at Action for Children, said this was a “big intervention with a big hole in it”. He explained: We desperately need more targeted help through benefits for the low-paid and those who have lost their jobs or cannot work because of disability, illness or caring responsibilities. Even with a freeze, energy bills will still be double what they were a year ago, the price of other essentials continues to soar and the true value of benefits has been cut. Becca Lyon, the head of child poverty at Save the Children, said the plan would not stop many families reaching crisis point this winter. She said: How can it be right that multimillionaires will get the same support as the most vulnerable families? If there is enough money to pay the energy bills of the rich and not ask energy giants to pay a penny more, surely there should be enough money to make sure no family has to choose between heating and eating this winter. James Taylor, the director of strategy for the disability charity Scope, said the plan was just a “sticking plaster” for disabled people. He explained: Life costs more if you are disabled. This universal approach brings some relief, but disabled people often rely on higher energy use. It’s important to remember that this cap does not limit what you pay. For many disabled households their bills are still skyrocketing. The End Fuel Poverty Coalition also said the plan would be an “expensive sticking plaster” without further investment in improving energy efficiency of homes worst affected by fuel poverty. The coalition coordinator, Simon Francis, said: While many households will breathe a sigh of relief, the prime minister offered no detail of additional support for the millions of households who will be left behind in fuel poverty this winter.