What is Labour’s plan to freeze energy bills?

Sir Keir Starmer says he ‘wouldn’t let people pay a penny more’ and argues £29bn strategy would save families £1,000 a year and help bring inflation down

Sir Keir Starmer has announced his plan to tackle soaring energy bills this winter, calling runaway household fuel costs a “national emergency”.

During a media blitz on Monday morning, the Labour leader’s “fully costed” £29bn strategy would freeze Ofgem’s energy price cap – the maximum amount utility companies can charge customers on standard tariffs – preventing the further dramatic rises forecast for October and January.

He said “wouldn’t let people pay a penny more” and that the policy would save families £1,000 a year, according to Labour’s own calculations.

The £29bn needed would come from closing the “absurd” loopholes in Rishi Sunak’s windfall tax imposed on oil and gas giants and backdating it to January (garnering £8bn), by dropping existing measures like the £400 energy rebate pledged by the former chancellor (£14bn) and by keeping inflation down, which would reduce the government’s debt interest payments by another £7bn.

“Millions of people are already struggling with their bills, we all know that across the country and the hikes that are expected for this October... from a price cap of just under about £2,000 to £3,500 and then £4,200 and millions of people, millions of families are saying ‘I just can’t afford that’,” Sir Keir told BBC Radio 5 Live on Monday.

“We have a choice and this is really the political choice of the day. We either allow oil and gas companies to go on making huge profits which is what’s happening at the moment or we do something about it.

“We, the Labour Party, have said we’ll do something about it. We will stop those price rises and we will extend the windfall tax on the profits that the oil and gas companies didn’t expect to make. So we’ve got a very strong, robust, costed plan here which will stop those rises this autumn.”

Elaborating further during an interview with BBC Radio 4’s Today programme, the opposition leader added: “The double benefit of this is that it also tackles the question of what are you going to do about inflation.”

Sir Keir argued that halting the price cap increases would keep inflation down, seeing it peak at about 9 per cent rather than the 13 per cent the Bank of England is forecasting, making future interest rate rises less likely.

Asked about the potential length of his proposed freeze, he said the situation would have to be reassessed in April according to the forecasts.

He also said that other measures would still be needed “on food etc to keep those prices down” and to insulate 19 million homes over the next decade.

On the decision to scrap existing government support measures, he said: “We’re not going to let the price go up in the first place and so that’s how the £400 is catered for.

“Whilst we’re cancelling parts of the government’s approach so far, the bit we’re not cancelling is the £650 to pensioners and those on Universal Credit, so that is targeted support we would keep.”

The policy was welcomed by the End Fuel Poverty Coalition, with the caveat that further government help would still be required to boost struggling families, and by the Institute for Public Policy Research think tank, whose latest analysis likewise suggests that freezing fuel bills would help keep inflation at just over 9 per cent, as well as easing the burden on families.

However, the plan was received more sceptically by the Institute for Fiscal Studies think thank, whose director Paul Johnson said Labour’s plan to cancel the energy price cap rise - if extended to a year - would cost around the same as the Covid furlough scheme.

He also told BBC Radio 4's Today programme that it would be "true this year" that this would bring down inflation and interest on government debt payments, but warned the average rate of inflation would not change over time assuming it was only a temporary subsidy, "so that's not a real saving ... in the long run".

In response, Sir Keir told BBC Breakfast: "What Paul Johnson isn't disputing is that our plan will reduce inflation... Of course what he's rightly saying is what happens after April matters because you have to maintain measures to reduce inflation."

Asked about the potential length of the freeze, Mr Starmer said the situation would have to be assessed in April according to the forecasts.

Labour’s plans drew a sarcastic response on social media from Liberal Democrat leader Sir Ed Davey, who announced similar proposals earlier this month.

The cost of living crisis is becoming ever more acute and the Tory leadership candidates, Mr Sunak and foreign secretary Liz Truss, have been under constant pressure to state what specifically they plan to do to resolve it and to bridge the power vacuum with Boris Johnson taking his latest holiday in Greece as schools consider having to transition to a three-day week because of the potentially exorbitant cost of heating classrooms.

“We’ve got to grip it because at the moment what we’ve got is two Tory leadership candidates who are fighting each other in a sort of internal battle, where their main argument seem to be about how awful their record in government has been and a prime minister who’s a lame duck because he’s acknowledged there’s a problem with energy bills, but says ‘I’m not going to do anything about it’,” Sir Keir told the BBC on Monday morning.

Chancellor Nadhim Zahawi is understood to have asked Treasury officials to draw up plans to cut gas and electricity bills by an extra £400 in January through a new lending scheme for energy providers.

However, critics warn that such a measure would not be implemented fast enough for October’s rises and would not necessarily be taken up by Mr Johnson’s successor at all.