Following the announcement in the Commons, a typical household energy bill will be capped at £2,500 annually until 2024. This is expected to cost up to £150 billion. Professor Martin can talk about what these figures mean in practice and what options the government has available to pay for it.
Commenting from Bath he said: “The announcement of the guarantee that the average household will pay no more than £2,500 in energy bills is welcome but it is vague. At this stage, we do not know the full details, although some things are clear:
“The commitment will be extremely expensive; we cannot say what the cost will be, since it depends on the war in Ukraine and other factors, but it is likely to be more than £100 billion and possibly close to £150 billion. To put this in context, the job furlough scheme put in place during the Covid-19 pandemic cost around £70 billion.
“It is not clear how the scheme will be funded, but there are no plans for a windfall tax on energy producers. This is likely to be highly controversial since their profits have increased substantially over the past year. It seems that the cost will be met through additional borrowing, to be repaid by taxpayers over time.
“There are plans to increase some aspects of energy production, but these are likely to prove equally controversial since they do not appear to include plans to reduce the demand for energy, through measures such as increased home insulation. This would be an effective and relatively cheap way of reducing energy bills.
“It seems that supply is to be increased through increased extraction from the North Sea and from fracking. There are no plans to increase the supply of 'cleaner' energy through wind and solar farms.”