Energy Price Guarantee. Freezing consumer energy prices at current levels or below has become a key policy demand from all sides of the political spectrum over recent months (see our recent New Economy Digest where we have examined various proposals to freeze the energy price cap). Pressure on the government to take action intensified over the summer as Ofgem announced that the energy price cap would increase to £3,549 per year from October. Last week, after mounting pressure, the new Prime Minister Liz Truss announced an ‘Energy Price Guarantee’ package which will limit average annual household bills to £2,500 over the next two years. The plan also involves retaining the £400 energy bill discount as well as a temporary suspension of green levies, bringing down bills by a further £150. 

  • Support for businesses. Though support for households spans a two year period, support for businesses and non-domestic energy users is capped at six months. After this, the Government will provide targeted support to “vulnerable industries” following a review of the businesses that need to be targeted. However, businesses may face delays of several weeks in receiving this support. Emma McClarkin, the chief executive of industry body, the British Beer and Pub Association, said these businesses “will not be able to wait days, let alone months to get clarity on their energy bill”. The TUC has highlighted that there is no guarantee that the support for businesses will be used to protect jobs
  • Liquidity support for energy companies. The plan will not be funded, as some have suggested, through further windfall taxes on energy companies. Instead, the Government will provide a £40 billion “liquidity facility” to support energy companies deal with market volatility. Progressive Economy Forum’s James Meadway compares the six month package for regular businesses with “the extraordinary generosity the government has found for the energy companies” through liquidity support. However, even this support for energy “middlemen” pales in comparison to the excess profits that energy producers will be able to continue making thanks to the government scheme, he argues. 
  • Oil and gas extraction. The Government aims to increase domestic energy production by controversially lifting the ban on fracking and licensing new North Sea oil and gas projects. The first fracking licence in nearly three years is due to be issued as soon as next week, despite warnings from the British Geological Survey (BGS) about the “significant existing knowledge gaps” on the link between earthquakes and fracking. The publication of the report has been postponed due to the death of Queen Elizabeth II. “A wave of protests” is likely over the coming months as campaigners plan to step up action in response to Government plans to double down on fossil fuel extraction.

Is it enough? The Energy Price Guarantee caps bills at £2,500 per year, which is still significantly higher than last year’s cap of £1,138. Some have criticised the plan for not targeting support to lower income households. The Institute for Fiscal Studies outlines how over half of the £60 billion earmarked for households will go to the top half of the income distribution. Consumer finance expert Martin Lewis also highlighted that the plan “means those with the biggest bills (often the wealthiest) gain the most”. Through the case study of one family, the Guardian explores how households will still suffer this winter despite the Energy Price Guarantee.

  • Won’t somebody think of the price signal? One additional criticism of a price freeze is that it will do little to discourage energy saving in a time of scarcity as it disrupts the price signal. Some have warned that this could lead to blackouts and rationing this winter. 
  • Impact on inflation. The Government has argued that its new plan will curb inflation, but figures suggest that lowering energy prices, rather than maintaining them, would have a much more significant impact on inflation. Research conducted by the Institute for Public Policy Research (IPPR) finds that while maintaining energy bills at current levels could reduce projected inflation by 3.9%, lowering prices to the level of the October 2021 cap could reduce project inflation by 5.6%

Funding the freeze. The Telegraph reports that the government is still unclear about the exact cost of the scheme, and may only announce the cost for an initial period of a few months. The plan is expected to cost around £150 billion, however this could be more depending on the wholesale gas market. For comparison, £70 billion was allocated to the pandemic furlough scheme. It will be funded by borrowing rather than an extension of the windfall tax on energy companies as many have called for, however this has not been outlined in any great detail. The Institute for Fiscal Studies’ Paul Johnson said: “Given the scale of the package, the failure to provide any official sense of a costing was extraordinary, and deeply disappointing”.  

  • “Tax profits properly”. Energy bill support could be partially funded by a 95% tax on the “record breaking profits” of oil and gas producers, according to Tax Justice UK. Tax Justice UK’s analysis shows that UK oil and gas producers are predicted to make £51 billion in excess profits over the next year, which is nearly four times more than the £13.5bn excess profits predicted in May. Such a tax would raise £44 billion a year for two years, which would represent a significant chunk of the £150 billion expected to be spent on the Energy Price Guarantee. 
  • Creating future problems. Despite the opportunity to raise revenue through taxing excess profits, the Government’s decision to fund the scheme through borrowing is “an unnecessary waste of its capacity to borrow and creating the risk of a future row about the size of the government debt and the need for spending cuts”, argues James Meadway. Stephen Bush argues that this marks a “new fiscal policy era” in which borrowing is the order of the day. 

Free basic energy? An alternative plan has been put forward by the New Economics Foundation, who argue that a short-term price freeze should be superseded by tariff reform including a system of free basic energy. Under this system households would be entitled to a basic allowance of free energy, with additional usage charged in rising block tariffs. NEF’s Alfie Stirling argues that this would protect the lowest income households and discourage excess energy usage, while costing the government less than the price freeze. NEF has also proposed a new energy element of universal credit to ensure more targeted support.

Weekly Updates


Recession? The UK economy stagnated in the three months to July as the cost of living crisis hit household budgets and business activity, according to ONS figures released this week, with Sterling falling to a 37-year low. “The disappointingly small rebound in real GDP in July suggests that the economy has little momentum and is probably already in recession,” said Paul Dales, economist at Capital Economics. 

The death of Queen Elizabeth II. Existing predictions of a recession have been exacerbated by the additional bank holiday that has been announced on the day of the Queen’s funeral. Closed businesses on the bank holiday along with postponed events during the period between the Queen’s death and her funeral may “be enough to tip the balance in favour of a second successive quarter of negative growth”, says the Guardian’s Larry Elliot and Richard Partington.

Monetary policy and macroeconomic policy

Interest rate rise delayed. The Bank of England’s Monetary Policy Committee, which is expected to raise interest rates for the seventh consecutive time, has postponed its decision to 22 September due to the period of national mourning in light of the Queen’s death.

Quantitative easing. Quantitative easing could be the answer to the cost of living crisis, argue Professor David G Blanchflower, Professor Lord Sikka and Professor Richard Murphy in a letter in the Financial Times. Such an intervention should be complemented by cuts in interest rates, energy price reform, nationalised energy supply and investment in new technologies, they argue. 

  • Conservative Modern Monetary Theory? The Government’s increasing readiness to borrow money and use quantitative easing is beginning to look like Modern Monetary Theory (MMT): “a twist on old-fashioned Keynesianism that briefly became popular during pre-pandemic austerity”, argues James Meadway. Though “Trussonomics is unlikely to go full MMT any time soon”, there is clearly now a “determinedly different style of Tory macroeconomics” at the helm.

Work and inequality

TUC submission to the ILO. The TUC has ​​written a submission to the ILO committee of experts, arguing that the UK Government has shown a consistent record of failure to respect the labour rights conferred by the ILO Conventions 87 and 98. It raises issues including the introduction of legislation that allows businesses to supply agency workers to replace striking workers and proposals to ban strikes by different unions in the same workplace within a set period. 

New Living Wage Foundation research. 78% of the UK’s lowest paid workers say that they are facing the toughest financial squeeze of their lives, according to new research by the Living Wage Foundation. More than half of workers polled, who are all on less than the real living wage, had used foodbanks in the past year while 42% reported regularly skipping meals for financial reasons. 

  • TUC calls for £15 minimum wage. The TUC has called for a £15 minimum wage as part of its package of measures to deal with the cost of living crisis. The TUC argues that this would help to underpin a £20 an hour median wage, which in turn would deliver a return to normal pre-crisis wage growth. 

Big Bung 2.0 The new Chancellor, Kwasi Kwarteng, is apparently considering scrapping the EU-wide cap on bankers bonuses imposed after the 2008 financial crash as part of his “Big Bang 2.0” approach to City regulation. Scrapping the cap would not be politically wise for the Government, argues Larry Elliot, and instead a "political gift to Labour and to unions, since it feeds into a clear them-and-us narrative". In the FT, Helen Thomas argues that scrapping the cap will deliver very few tangible benefits to the City.

Average income data. The living standards of average Slovenian households will overtake average British households by 2024, and the average Polish family will move ahead before the end of the decade, according to new data presented by the FT’s John Burn-Murdoch. The piece demonstrates the extent of living standard inequality in the UK and the US, with households at the top enjoying some of the highest living standards in the world, while those in the middle and the bottom fall behind other developed countries.


Improving the Manchester PRS. IPPR North has developed proposals for improving the quality of the Private Rented Sector (PRS) in Manchester which it argues is needed alongside the building of new social homes to improve the quality and stability of the city's housing market. Proposed solutions include developing a financial model for property improvement and a "trailblazer" devolution deal that puts housing first and supports the implementation of a property improvement model.

Industrial strategy

The green steel race. The UK is trailing behind other European countries in the "international race to green the steel industry", according to new research by Common Wealth. It finds that "while the UK government pledged £250 million as part of the Clean Steel Fund ahead of the 2019 General Election, funding has yet to be distributed years later, despite repeated calls on the government to act". 

A failure to invest. Many of the UK's problems are related to a failure to invest, says LSE Professor Neil Lee. Many of the country's economic problems can be traced back to low investment in R&D, education, business, insulation and more, he argues.