Keir Starmer's £29billion emergency energy bills plan dubbed 'illusion' by IFS director

Keir Starmer's £29billion emergency energy bills plan dubbed 'illusion' by IFS director
Shadow Financial Secretary to the Treasury J
Tom Evans

By Tom Evans

Published: 15/08/2022

- 07:31

Updated: 15/08/2022

- 07:57

Sir Keir Starmer has seen Labour’s £29billion emergency plan to stop energy bills rising over the winter questioned

Paid for in part by an extension of the windfall levy on the profits of the oil and gas companies, the Labour leader says his party’s proposals are “fully-funded”.

Sir Keir insists consumers will not have to pay “a penny more” for their gas and electricity over the coming months, saving the average household £1,000.

He says his plans are a direct response to a “national economic emergency” which have left millions of families across the country fearing how they will cope.

But the Institute for Fiscal Studies (IFS) questioned how Labour will fund the support package, saying some of its proposals are an “illusion”.

As well as freezing the energy price cap at its current level of £1,971 for the average household, Sir Keir says a Labour government will insulate 19 million of the coldest homes over the next decade, further reducing bills.

Labour leader Sir Keir Starmer is interviewed by Iain Dale during %22Iain Dale's All Talk with Sir Keir Starmer%22, at the Edinburgh International Conference Centre as part of the Edinburgh Festival Fringe. Picture date: Friday August 12, 2022.
Sir Keir Starmer is hoping to unseat the Tory Government
Jane Barlow

Shadow chancellor Rachel Reeves in conversation with Claire Walker, BCC Co-Executive Director, during the British Chambers Commerce Annual Global conference at the QEII Centre, London. Picture date: Thursday June 30, 2022.
Rachel Reeves is Sir Keir's Shadow Chancellor
Yui Mok

The party says scrapping the planned increases in the price cap – which has been predicted to rise to more than £3,500 in October and to more than £4,000 in January – will cut inflation by four percent, making future interest rate rises less likely.

Labour figures say the price freeze mean it will not go ahead with the £400 rebate on energy bills which the Government has promised all households in October, to soften the impact of rising prices.

Sir Keir says Labour is also committed to measures to increase the UK’s energy security, doubling onshore and offshore wind capacity, investing in solar, tidal and hydrogen, and bringing forward new nuclear capacity.

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.

“Labour’s fully-funded plan would fix the problems immediately and for the future – helping people get through the winter while providing the foundations for a stronger, more secure economy.”

His intervention will increase the pressure on the Tory leadership contenders – Liz Truss and Rishi Sunak – to spell out what they would do to help families struggling with soaring bills.

So far they have both remained tight-lipped on the issue, while figures within No.10 say no detailed policy can be laid out until the country has a new Prime Minister in September.

To pay for the measures, Labour say it will close a “loophole” in the levy on the profits of the energy companies announced by Mr Sunak in May when he was Chancellor, and backdate the start to January, which together with rising global prices would bring in £8billion.

Labour say £14billion will come from other measures such as dropping the £400 energy rebate, and abandoning pledges made by the the Tory leadership contenders.

The "green levy" on fuel bills – proposed by Liz Truss – will be scrapped, as will Mr Sunak's VAT plans.

Rishi Sunak and Liz Truss taking part in a Tory leadership debate in Stoke-on-Trent
Rishi Sunak and Liz Truss taking part in a Tory leadership debate in Stoke-on-Trent
Jacob King

Boris Johnson faces his final few weeks as Prime Minister
Boris Johnson faces his final few weeks as Prime Minister
Peter Nicholls

Sir Keir says his plans will keep inflation down at nine percent, rather than the 13 percent being forecast by the Bank of England.

Labour also say the plan will reduce the Government’s debt interest payments by another £7billion.

But IFS director Paul Johnson warned that inflation would quickly pick up again once the subsidies ended, meaning the cost of servicing the debt would also increase.

He told The Daily Telegraph: “It’s an illusion in the sense that it will reduce interest debt payments in the short term but unless you maintain these kinds of subsidies permanently, it won’t reduce them in the long run. Inflation will be higher later on."

Labour also set out a package of support for business with a £1billion contingency fund to support energy intensive industries – such as ceramics, glass and steel – as well as an increase in the business rates threshold for small businesses.

The party said it will be financed through an increase in the in the rate of the Digital Services Tax (DST) this year, raising at least £2billion from the most profitable global tech giants.

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