Liz Truss’s energy plan will disproportionately benefit the wealthiest households

Britain’s looming living standards catastrophe was the big question hanging – unanswered – over the Conservative Party leadership race this summer, with both candidates refusing to be drawn on how exactly they’d tackle soaring energy bills.

But Liz Truss provided an emphatic answer on just her second full day in office by announcing a new Energy Price Guarantee that effectively caps typical households’ energy bills at £2,500 for the next two years.

This is a simply huge policy – and one that is essentially a blank cheque given high levels of uncertainty about future gas prices. The Government provided no costings of its own. But our analysis suggests that it could cost around £60 billion over the next six months, rising to around £120 billion over the next two years. Add in support for business, and this could easily surpass the £137 billion spent bailing out the banks at the heights of the financial crisis – although it will be a couple of years until we know the actual final price tag.

Once you factor in the £30 billion of support announced by the last Chancellor Rishi Sunak, the Government is providing, on average, £2,200 worth of cost of living support to every household this year. That’s enough to prevent a broad living standards catastrophe, but it won’t stop this winter from feeling very tough for households. After all, energy bills will still be twice as high as they were last winter, and pay packets are still shrinking at an alarming pace amid double-digit inflation. The UK’s four million families on pre-payment meters, who tend to have lower incomes, will still need to find £250 up front to keep the heating on in January alone due to the higher cost of gas, and the fact that households use more gas during this month.

But it’s important to remember that this cost of living crisis won’t end when the temperatures start rising next spring. In fact, next year could feel even tougher for many families as much of the Government support will run out (even if benefits are increased next April to keep pace with prices). The £400 energy bills discount will expire, and vulnerable households – pensioners and working-age families receiving means-tested benefits – will not get another round of £650 lump-sum payments to help with their energy bills.

Instead, support will be geared towards richer families, who stand to benefit most from the cut to National Insurance contributions (which was originally touted as funding for our beleaguered social care sector) that the Government is expected to announce in the coming weeks.

As a result, rich households stand to receive twice as much cost of living support as poorer households. Support for the richest tenth of households will – at £4,700 in 2023-24 – far exceed the level of support for the poorest tenth of households (£2,200) despite the latter being most exposed to high energy bills. That’s no way to tackle the squeeze on incomes that households will be facing over the next two years.

The Energy Price Guarantee is broadly the right response to the cost of living crisis we face. And there are fairer ways than National Insurance to fund social care provision – higher taxes on assets held by all generations would be better than raising taxes on workers alone. But the uncosted nature of both policies, and the refusal to countenance further windfall taxes on energy providers or solidarity taxes on richer households, means the Government is giving away an awful lot away to people who don’t need it. The cost will ultimately be paid by higher taxes on future generations, and via higher interest rates – with such a large economic stimulus putting pressure on the Bank of England to raise rates even faster than planned. We all know there’s no such thing as free lunch, let alone one worth £120 billion, and tomorrow’s taxpayers could be picking up the tab for decades.

This article was first published in iNews