Find ‘something better’ than energy price freeze set to cost £150bn, Liz Truss told

‘This could turn out to be the biggest single fiscal announcement in my lifetime’, IFS chief warns

The energy price freeze must be replaced by “something better next winter” because it will cost up to £150bn, a leading economist has warned Liz Truss.

Paul Johnson, the head of the Institute for Fiscal Studies (IFS), urged the prime minister to ditch plans to hold down everyone’s bills until 2024 and find a smarter solution to the crisis.

The plea comes after fierce criticism of the government for failing to reveal the expected cost of a two-year freeze ahead of an expected “mini-budget” next week.

Mr Johnson called that decision “extraordinary”, saying: “This could actually turn out to be the biggest single fiscal announcement in my lifetime, because this could cost £150bn.”

He agreed the freeze “might be necessary” for this winter, but warned: “It’s incredibly expensive. It’s totally untargeted.

“It gives large amounts of money to people who don’t need it, and it means that we’re not facing the price signal that there is less gas out there. And yet, we’re being massively subsidised to use gas.”

Mr Johnson told Times Radio: “One of the things that I really hope is that they’ve got teams of people working next year on thinking of something better for next winter.”

Ms Truss carried out a spectacular U-turn, just two days into her premiership, by announcing average annual household bills will be frozen at £2,500 until 2024.

They were set to rise to £3,549 from next month and to more than £5,000 next year – threatening millions of people with bills they would be unable to pay.

Full details of how the “energy price guarantee” will work are yet to emerge, as the announcement was immediately drowned out by the death of the Queen.

The government will meet the cost – through a leap in borrowing – of capping the amount energy companies can charge customers for one unit of gas.

A £400 rebate on all bills announced earlier this year has been retained, cutting £66 every month from October until April, and green levies suspended, saving the average household about £150 a year.

The Resolution Foundation think tank has put the price tag at £120bn – the bill just to bail out households, with separate tens of billion needed to rescue businesses.

Although it is called a “guarantee”, people in large or draughty homes will inevitably pay significantly more.

Ms Truss downgraded her planned emergency budget to a “fiscal event” – to avoid scrutiny by the Office for Budget Responsibility (OBR) – which was pencilled in for next week.

She is expected to fly to New York for the UN leader’s meeting as early as Monday evening, within hours of the Queen’s funeral, returning to the UK late on Wednesday or early Thursday.

That would allow the mini-budget to be held on Thursday next week, before parliament breaks up again for the Labour and Conservative party conferences.