he new occupant of Number 10 Downing Street is about to get the UK’s biggest energy bill, and it’s going to be twice as expensive as previously thought, according to some City experts.
Liz Truss is expected to announce plans to freeze gas and electricity bills for domestic and business customers on Thursday. Analysis from Deutsche Bank puts the cost of the measures at almost £200 billion.
That’s around double Deutsche’s original estimate and about half the price of the pandemic support measures drawn by Rishi Sunak, the man Truss beat in the Conservative Party’s leadership contest.
Sanjay Rana, a senior economist at Deutsche, said: “We now think that a freeze on energy bills is more likely to land in October rather than January … set around £2,500, for potentially 18 months.”
He estimates the cost of the domestic price freeze “a little north of £95 billion, with recent reports suggesting that this would be funded directly from borrowing with no repayment expected from households.”
Support for businesses was, he said, “more surprising to us” and “at a potential cost of £40 billion.”
Analysis from Jeffries puts the likely total cost of the measures at £155 billion, with a “55% reduction in domestic bills.” The broker described the package as “substantial” but said it also “fails to address the underlying issue of supply/demand risks in the upstream gas and power markets.”
Deutsche also said the level of the £2,500 price freeze was “a substantially lower amount than we had anticipated,” but with it looking likely to be applied earlier and for longer and taken alongside support for business, the near-£200 billion cost would be “a little over 8%” of the UK’s gross domestic product.
The banks Rana added that the domestic measures “should also limit any expectations for targeted support going forward, with our expectations for universal credit support halved to around £5 billion in 2023/24.”
As the wait for the confirmation of the details of the plan entered its final hours, there were also calls for greater use of renewable energy to reduce the UK’s dependence on wholesale gas markets.
Dan Brooks, director at Moda Living the developer of rental communities, which has an average energy cost saving of 20% for its residents compared with Ofgem price caps, said: “We need both major government investment into renewable energy generation and an overhaul of the planning process for new renewable power projects.”
Truss ruled out an windfall tax on energy producers at her first appearance at prime ministers questions in the House of Commons, and has signalled that the government wants to see more use of the UK’s own oil and gas resources.