What is Labour’s plan to freeze energy bills, and how has it been received?

Katie Neame
© OgnjenO/Shutterstock.com

Labour has today unveiled a plan to respond to the cost-of-living crisis and protect consumers from sky-rocketing energy bills. Appearing on BBC Radio 4 this morning, Keir Starmer said Labour was “not going to stand by” while millions of households struggle to pay for energy this autumn. “We’ve got to make a choice. We can either let oil and gas companies continue to make huge profits that they didn’t expect to make whilst families and millions of people struggle to pay their bills, or we do something about it,” the Labour leader said.

There had been mounting pressure on Starmer and his party to set out a plan to bring energy bills down after analysts predicted that typical bills could rise to £3,500 in October and to more than £4,200 in January. So what does Labour’s plan propose to do for consumers, and how has it been received?

The plan

Labour announced today that it would freeze gas and electricity prices immediately, keeping the energy price cap (set by the regulator Ofgem) at its current level of £1,971 until April – a move it said would save the typical household £1,000.

Labour confirmed plans it set out last week to scrap energy premiums that customers using prepayments meters face, bringing the price cap for prepayment and standard credit customers in line with those paying by direct debit. Labour said it would also ask Ofgem to assess how to make this a permanent change from April.

The party added that its plan would provide the same level of support to the approximately 2.7 million British homes that are located off-grid and that resources would be made available to Northern Ireland in line with the Barnett formula, as energy is a devolved issue.

Labour said the overall cost of its proposals would be £28.9bn for six months and proposed to pay for this through three methods.

Firstly, by introducing changes to the government’s windfall tax on the profits of oil and gas companies, including bringing forward the start date of the levy from May 26th to January 9th (the date when Labour first called for a windfall tax) and scrapping the investment allowances included in the government’s bill, through which energy companies receive 91p in tax savings for every £1 invested in the North Sea. Labour said these two changes, coupled with increased gas and oil prices, would bring in £8bn.

Secondly, Labour would repurpose the £14bn of planned spend from the government’s energy rebate scheme and from the Tory leadership candidates’ proposals on energy bills.

Thirdly, the opposition said keeping energy bills down would in turn reduce inflation, resulting in a reduction in government debt interest payments of £7bn.

What has been the reaction to the plan?

Labour’s emergency intervention has largely been welcomed, though criticism has been made about both the approach and the scope. Associate director for climate and energy at the Institute for Public Policy Research (IPPR) Luke Murphy said the proposals would “prevent soaring energy bills from pushing millions into debt and destitution and hold down ever-rising inflation which is a risk to the UK’s economic stability”.

Unite general secretary Sharon Graham stressed that the plan only addresses the dramatic rise in energy bills, not the unprecedented profits made by energy companies, warning: “Britain’s real crisis isn’t rising prices ­– it’s an epidemic of unfettered profiteering. Energy firms, like Scottish Power, owned by Spain’s Ibedrola, or the French state-owned EDF, own huge swathes of our energy supply. It seems that public ownership is only to be heralded as long as it is not the British people doing the owning.”

UNISON general secretary Christina McAnea said: “Labour’s plans are a positive start to deal with the cost-of-living crisis, reduce bills and control inflation. They’re in stark contrast to the government’s inertia and failure to grasp the struggles of working people.”

Momentum advocated for nationalisation and criticised Labour’s decision to compensate energy companies in order to keep the energy price cap at its current level. Co-chair Hilary Schan said: “Instead of proposing to shell out tens of billions of pounds subsidising energy companies, Labour should be arguing for public ownership, at a fraction of the price. It’s the common sense solution, backed by most voters, and the best way to keep soaring bills down.”

Usdaw General Secretary Paddy Lillis was supportive of the proposals, declaring: “We desperately need an emergency budget, and Labour’s energy price plan should be at the heart of it. This plan shows the clear and positive difference that a Labour government can make for our members and the country.”

Director of Common Wealth Matt Lawrence told LabourList that freezing the cap is a “welcome step forward” but warned that “if this is to be more than a stopgap solution, we need to restructure the energy system around public needs”. He added: “From 2010-2020, the Bix Six energy suppliers handed out £42.7bn to shareholders. Unless the energy market is transformed, significant parts of this £29bn package risk flowing to shareholders.”

Fabian Society general secretary Andrew Harrop said freezing bills for winter was “essential” but argued that Labour’s policy “only buys the country time”, emphasising the need to reform the UK’s energy market and invest in insulating homes and increasing social security for low-income households.

Assessing Labour’s plan

Labour’s plan would protect households from the worst-case scenario of energy bills topping £4,200 in the new year and, for six months, shields households against the dramatic fluctuations in prices expected with Ofgem now updating the price cap quarterly rather than every six months.

But Labour’s plan freezes the cap at it current, already elevated level of £1,971 – well above the £1,277 cap from last winter. The party has also not set out what comes next after the six-month period has passed, although it has not ruled out further spending, saying it would assess the situation at a later date.

Criticism that Labour has not been calling for a longer-term vision solution is unfair. In today’s plan, Labour again outlined its five-point plan for energy sustainability and security – first detailed in March – which includes insulating 19 million homes over ten years and significantly increasing the UK’s renewable energy capacity.

But, in the context of the huge profits being announced by energy companies, the case for a more radical overhaul of the system grows stronger. In July, The TUC unveiled a plan for reducing consumer energy costs by bringing energy companies into public ownership. It estimated that nationalising the ‘big five’ energy retail companies – British Gas, E.ON, EDF, Scottish Power and Ovo – would cost £2.85bn, less than a tenth of the cost of Labour’s plan.

Former Prime Minister Gordon Brown made headlines last week by setting out his own vision for bringing energy bills down. This included proposing that energy companies that cannot offer lower bills be temporarily brought into public ownership, though he emphasised that this should be a “last resort”. With the cost of energy expected to remain extremely high beyond April next year, would it not make sense to advocate for a more radical solution, at least on the scale of Brown’s proposal, rather than pledge so much on what would be an effective, but clearly short-term, fix?

At the very least, however, Labour’s proposals will heap pressure on Conservative ministers to provide more support to households in the face of spiralling energy costs. And, as we saw with the windfall tax, a strong and popular policy can force the government into even the most humiliating of U-turns.

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