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British households will have their annual energy bills capped at £2,500 for two years in a £130bn+ scheme that will save consumers thousands of pounds.
Prime Minister Liz Truss said the two-year Energy Price Guarantee will begin at the start of October and that the government will pay energy suppliers the difference between the cap and what they would have charged without any intervention.
The £2,500 figure is above Ofgem’s current £1,971 energy price cap, but far below what the cap would have risen to next month and in January.
Businesses and public sector organisations have been promised “equivalent support” for six months, however exact details of the plan have yet to be announced.
More support will be given after six months for businesses that are in “vulnerable industries”.
The Prime Minister also announced a raft of measures intended to increase domestic energy supply, including lifting the moratorium on fracking, new licensing for oil and gas exploration and a review of the UK’s 2050 Net Zero target to ensure it is “pro business and pro growth”.
Truss said the government estimates the plan will ensure UK inflation is 4 or 5 percent lower than previously predicted, meaning “a reduction in the cost of servicing government debt”.
Today’s intervention has sent the pound up 0.13 percent against the US dollar and the FTSE100 up 0.22 percent.
The long-awaited package is the largest fiscal intervention in the energy market ever by a UK government and comes after Truss originally said in the leadership campaign that she was not in favour of “handouts”.
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It comes as energy prices were set to almost triple for households by January and increase even more for businesses, that did not fall under Ofgem’s energy price cap.
The plan will mostly be paid for through increased borrowing, driving the UK’s debt pile to even higher levels, with exact figures to be outlined by chancellor Kwasi Kwarteng later this month.
Labour has called for the package to instead be paid through a further windfall tax on North Sea oil and gas.
Truss said: “This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options. There will be a cost to this intervention.”
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