Keir Starmer has put an £8bn tax hike on energy company profits at the heart of a new plan to prevent people paying “an extra penny” on their fuel bills this winter.
The Labor leader confirmed that under his plan the energy price cap would be frozen at the current level, meaning an expected rise of 80% in October – taking an average household bill to around £3,600 £- would not occur.
Starmer said the country was facing “a national emergency” and Labor “wouldn’t let people pay a penny more” on their energy bills as a result of their “fully funded plan”. A typical family would save £1,000, he claimed.
He said: “Britain’s cost of living crisis is worsening, leaving people fearing how they will get through the winter. Labour’s plan to save households £1,000 this winter and invest in sustainable British energy to reduce long-term bills is a direct response to the national economic emergency that is causing families to fear for the future.”
Starmer said the plan would cost £29bn over the winter and could be funded by extending the scope of the windfall tax on energy companies (raising £8bn), stopping £400m payments proposed by to all households offered by the government to compensate them. the planned peak price rise for October (saving £14bn) and the reduction in government interest payments on the debt (saving £7bn), which Labor said which would be possible because his plan would reduce inflation.
Last week Sir Ed Davey, the Lib Dem leader, and Gordon Brown, the former Labor prime minister, called for the energy price cap to be frozen at its current level and published plans outlining how could finance
This led to criticism that Starmer, who was on holiday at the time, was letting them, rather than the Labor leadership, set the agenda.
Starmer’s plan was published as Boris Johnson was reported to be on his second overseas holiday of the summer. He was photographed with his wife, Carrie, in a village near Athens. Earlier this month, the couple took a break at an eco-hotel in Slovenia.
The energy price cap is now set at £1,971 and is expected to almost double in October, with a further rise expected in January. Economists and charities have said millions of households will be plunged into poverty as a result, or unable to pay.
The government has not proposed a freeze on energy price rises but has announced a series of measures to help people pay their bills, with Johnson saying he is confident his successor will deliver more help at Autumn.
But neither Liz Truss, the foreign secretary and front-runner in the race to replace him, nor Rishi Sunak, her rival and former chancellor, are calling for the energy price cap to be frozen.
And while both have indicated they will provide additional cash support to households, neither has proposed a comprehensive plan to fund it other than through additional borrowing. Truss maintains that his real priority is to reduce the tax burden.
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Starmer stressed that his winter proposal was part of a wider plan that also involves insulating 19 million homes over the next decade. If the government had started when Labor proposed a year ago, 2 million homes could have been insulated by now, saving the typical occupier £1,000 a year, he claimed.
Under the energy price cap, Labor would need £29bn to pay energy companies to cover the gap between what they would receive from customers and what they would have to pay for energy on the wholesale market.
As well as freezing the energy price cap, the Labor Plan would involve support for people not protected by the price cap and a plan to ensure that people with pre-paid meters do not have to pay more for their energy than those people who pay monthly.
Brown, as part of his plan, suggested the government should consider making energy companies temporarily publicly owned. Starmer has rejected that proposal, arguing that money from the package should go to helping customers, not compensating shareholders, a party source said.
To raise an extra £8bn from the windfall tax, Labor would close a loophole that would allow tax breaks on investment in fossil fuels and backdate the tax to January.
Davey welcomed the Labor announcement. “Now that the progressive parties and charities are speaking with one voice to cancel the energy price rise with a windfall tax, the woeful response from Liz Truss and Rishi Sunak is even more outrageous,” he said the Lib Dem leader.
“The inconsistency and delay of this Prime Minister’s and any future Prime Minister’s government is deeply damaging to pensioners and families across the country.”
Labor says that as a result of its plan, energy bills would add just two percentage points to inflation over the winter, instead of the six percentage points currently expected. This figure has been endorsed by the analysis of the think tank of the Institute for Public Policy Research (IPPR).
Luke Murphy, IPPR’s Associate Director of Climate and Energy, said Labour’s plans “will prevent rising energy bills from pushing millions into debt and poverty, and curb rising inflation that poses a risk to stability UK economy”.
But many international and national economic think tanks have urged the government to increase means-tested benefits to target households most at risk of rising energy bills.
The International Monetary Fund (IMF) has reprimanded European countries, including the UK, for offering universal subsidies that also benefit wealthier households in addition to higher benefits.
Adrian Pabst, deputy director of public policy at the National Institute for Economic and Social Research, said: “It amazes me that political parties want to subsidize the companies that supply energy, and for that the households that are most able to cope to the energy shock. It is more socially equitable to deal with the problem by increasing universal credit.”
Pabst is skeptical that a cap freeze would reduce inflation by a significant margin and that the Bank of England would react by halting expected interest rate hikes.