As energy prices rise with record profits for energy firms in the UK, we examine the Labour’s plan to freeze prices and impose a windfall tax on profits.
Labour leader, Sir Keir Starmer, has today announced his party’s new £29 billion plan to tackle the ‘national emergency’ over energy bills – including a freeze for all households across the UK. Energy bills, which have been rising exponentially since Russia’s invasion of Ukraine earlier this year, have put severe pressure on UK households – contributing to record high inflation at 9.1% and the current cost-of-living crisis.
Sir Keir stated that under his government the British public would “not pay a penny more” on their energy bills this winter, promising to save the average household £1,000. He explained the bold strategy would stop maximum prices rising from the current £1,971.
To finance this freeze on energy prices, the Labour leader detailed plans to put taxes on oil and gas firms – a move he says will raise £8 billion. In addition, he explained £14 billion would come from funds already pledged by the Conservatives, including the support package announced in May that promised a £400 discount on household bills.
The three specific policy changes proposed include:
- Backdating the windfall tax to January and accounting for higher oil and gas prices to raise £8 billion.
- Dropping the £400 energy rebate and other pledges made by Tory leadership to raise £14 billion.
- By reducing inflation with lower energy bills, leading to a cut in government debt interest payments of £7 billion.
Announcing Labour’s plans, Sir Keir said: “Britain’s cost of living crisis is getting worse, leaving people scared about how they’ll get through the winter.
“We’ve had 12 years of Tory government that has failed to prepare and refused to invest, leaving bills higher and our country less secure.
“This is a national emergency. It needs strong leadership and urgent action.”
The idea of freezing the price cap is backed by the Liberal Democrats and the SNP.
The Conservative’s response
In recent months, the speculation around a windfall tax on the huge profits of energy companies has sparked national debate and formed a key crux between Labour and the Conservatives. Rishi Sunak, former Chancellor and Conservative leadership candidate, had previously ‘u-turned’ on his initial reluctance to impose a tax on such profits with a one-off windfall tax announced in May earlier this year. With energy ‘giants’ such as BP making record quarterly profits of £6.9 billion – the proposal of such as tax has been criticised from the Conservative benches as dissuading investment and growth.
As the Conservative leadership race continues between Mr Sunak and Liz Truss, it seems unlikely that such changes will be enacted – at least until the next general election.
The two contenders for the job have indicated they are not keen on extending the windfall tax on oil and gas companies – or freezing the price cap – meaning it is unlikely to happen unless they have a change of heart. Given the ‘low-tax, pro-growth’ rhetoric that is being displayed in the Tory leadership race – both Mr Sunak and Ms Truss will not go back on their promises lightly.
What the commentators say
Paul Johnson, director of the IFS, told the BBC Labour’s plan was “a very big and very expensive plan” that would be on the same scale of support for the public as the furlough scheme during the pandemic, if it was extended beyond the initial six months planned.
“Of course, what it does achieve is to protect everyone entirely from the increases in energy prices so if that is what you want to achieve that is what you need to do but you do need to realise that is a very expensive thing to do,” he added.
A Treasury spokeswoman said the government had “continually taken action to help households by phasing in £37bn worth of support throughout the year”.
This includes £400 off energy bills for all UK households and an additional £650 for eight million low-income households.
Given the hot topic of energy profits and the worsening cost-of-living crisis, it is no surprise Sir Keir is pouncing on the promise of slashing energy bills for households. As record-high inflation looks to deepen in the coming months, the incoming Conservative leader must seriously address aiding the public on bills as their top priority. Whilst Mr Sunak has u-turned on his previous defiance of such a tax before, both candidates will seek to show their true Tory ‘colours’ of less regulation and lower corporation taxes for this month’s hustings.
However, given the bleak forecast of energy prices into next year – continuing record profits of energy companies will not sit well whilst many are pushed deeper into poverty. Time will tell how the Conservative leadership will deal with this problem.