Will Liz Truss’ price cap really make a difference?

What’s the energy price cap?

Government regulator, Ofgem, has responded to shortages of energy supply by raising the energy price cap. This means that they have increased the limit that energy suppliers can charge for electricity and gas. The result has been a soaring rise in the cost of energy across the UK.

The next price cap, which was set to take place in October, would have seen energy costs jump to a whopping £3,549 from £1,971. However, the new British PM, Liz Truss, has replaced this with an Energy Price Guarantee.

What’s the new policy on energy?

The new policy guarantees that the average UK household pays a maximum of £2,500 in energy for the next two years. Businesses, charities and academic institutions would also have their costs capped.

The government also reversed the ban on hydraulic fracking; a process used to extract natural gas from rock formations, and has approved plans to drill for oil and gas in the North Sea.

What's the good news?

• Liz Truss’ plan protects the average UK household from the price cap that was forecasted for next month. The average household will spend up to £1,000 less than they would have without the new guarantee.
• By creating their own sources for oil and gas, the UK will be more self-sufficient. This could prevent a crisis like this from reoccurring.
• Households are also protected from further increases in the price cap. A Cornwall Insight’s study showed that families could potentially save £1800/month over the next year.

Default Tariffs Cap Forecast, £ per year

What's the bad news?

• The plan is extremely expensive. It’s forecasted to cost up to £150 billion in just
  one year - twice as much as the COVID-19 furlough scheme.
• The government has yet to officially disclose just how much more taxpayers will be paying to cover these costs.
• People are still experiencing an increase of £1,500 more than their current bills.
• Lower income families, who are already fighting to cover their costs, will now struggle more.
• Charities have reported that 2.2 million families will experience fuel poverty this winter.
• The gains are not evenly distributed; while wealthier families will get £4,700 in support, lower-income homes will receive £2,200.
• Hydraulic fracking is extremely damaging to the environment.
• It doesn’t address the real problem: reducing energy consumption. High levels of energy consumption while there are supply shortages could lead to bidding wars between countries, or even rationing and blackouts.

So, will the new plan work?

The UK has been divided in their opinions on the new policy. One YouGov survey showed that 80% of Britons are in favour of Truss’ plans. However, the same survey also revealed that 56% of respondents believe the scheme doesn't go far enough to support families.

If you ask us, we think Truss’ new measures are somewhat of a bandaid over the real problem. While it’ll protect families from crippling bills temporarily, it’s too costly to maintain long-term and fails to provide enough support to lower income families. Reports showed that households on energy metres will spend almost 50% of their disposable income on heating costs.

In summary, the Energy Price Guarantee is a good way to buy some time. However, some argue that it doesn't go far enough to support those in need. It also fails to tackle the root of the problem: over-consumption of energy. If this continues, the mismatch between supply and demand will continue as well.