Liz Truss energy price cap announcement

This will be a welcome relief for millions of people around the UK. However, we’ve already seen the Bank of England announce they will likely have to increase the base rate at a faster rate because of this announcement to try and combat inflation, which is clearly a Catch-22 According to reports there are over 2 million homeowners who are due to see their fixed rate end next year who are now likely to be even more worse off. Less short-term pain now could result in more longer term pain.

Whilst the energy cap is incredibly important, hospitality businesses cannot wait for three months in limbo. Decisive action on 10% VAT and zero business rates would immediately stop many independent hospitality businesses from closing. These businesses are integral to the community, creating jobs and paying taxes to the UK. Nobody wants to be the only hospitality business on the street, surrounded by boarded-up stores that couldn't make it work, but that's what many are facing. 10% VAT can be decided now. Business rates can be delivered now. Support the SMEs paying tax, not the businesses with offshore IP, making cash in the UK but not paying their share of taxes. The high street won't benefit from being full of businesses giving nothing back.

Any action is a start, as for months the government dithering around has caused torment and anxiety to individuals and businesses alike. While it's late, it's welcome. But costs are still too high for many, especially those on lower incomes. And many SMEs will still have a fortune to find, and this will be passed onto consumers as Christmas bites, just as everything else inflates like a balloon. Where they are going to fund this from is a whole other issue, and we need something longer term as the Government can't step in forever and the public is conscious that short-term help usually equals long-term pain.

The fact that the exact details about company energy bills are yet to be outlined leaves many businesses in the lurch. Ultimately, this makes forecasting business plans impossible. The damage caused by this ongoing economic stretch is already in effect, with many businesses’ financial challenges now amounting to unmanageable levels. Businesses now need a clear and direct approach to the energy crisis so they can plan their finances for the challenging winter ahead.

When 75% of your own party members would support a windfall tax on the profits of energy companies, why is the bill being picked up by everyone else for decades to come? The other thing that is sorely lacking is funding for renewables because Mr Putin or the next despot can't turn off the wind or sun. We're exposing ourselves to the same sorry saga next time it kicks off somewhere else in the world or when oil and gas run out, which they will. We know renewables are now the cheapest source of energy so why on earth are we not taking some of the obscene profits from oil and gas production and going all in on building a sustainable future instead of still talking about fracking, which is no more than a short-term sticking plaster?

The announcement from Liz Truss will bring some form of relief to millions of household throughout the country. Is more government borrowing really the answer, though? We will no doubt pick up the bill somewhere down the line. From a mortgage perspective, this should ease the affordability assessment slightly. Mortgage lenders automatically factor in the cost of living in their calculations based on national statistics. The cap of £2,500 will no doubt help with these calculations and will help potential borrowers with their mortgages.

Short-term policies seem to be the tactics of the "new" government. The much expected suspension of the Green Levy is a prime example of this. The money raised was used for a number of policies aimed at making the poorest homes in the UK more energy-efficient, thus benefiting people for the long term. Instead, the Government look like they are happy to mortgage the future for a gain that is unlikely to be as significant as the Levy. Make no mistake, the biggest beneficiaries of this will be the energy companies and their shareholders. Something needed to be done to ensure we did not have the spectre of thousands of households going through winter without heating but after having months to come up with a plan this appears to have been a Baldrick special. We are getting many of the negative sides of nationalisation without any of the potential benefits.

Truss' plan is long overdue but welcome nevertheless. Capping energy to £2,500 is double what people were paying in January of course, so it will still leave millions of households struggling to keep their homes warm this winter. But at least it provides certainty. Renegotiating renewable electricity costs to decouple them from fossil fuel prices, and expanding domestic gas and oil production is sensible. It's just a pity it's taken a full-blown energy crisis to do so.

One of the bolder implications of the energy bill freeze proposal is increased borrowing to finance the cost of Truss’s plan at £179 billion. Despite her confidence that her supply-side reforms will bring down inflation by “up to five percentage points”, it can be argued that a conflict between fiscal and monetary policies will ensue once the Bank of England decides to pursue a series of interest rate hikes in the coming months. This in turn will impact around 2 million homeowners with variable rate mortgages and those whose fixed-rate loans will soon expire. In addition, we expect the price cap to be just a preliminary solution before the government introduces market-wide reforms and observes fiscal discipline. While the October price hike will be less than £1,000, had it not been for Truss’s energy cap response, a typical household energy bill will still be higher by around £500 and will further accelerate the gap between household costs and incomes even with additional government support. Heading into winter, more low-income households, especially those on prepaid energy metres, will be forced to prioritise energy spending over other necessities and thus continue to feel the pain of the energy shock.

Businesses in the hospitality and leisure industry are still recovering from the pandemic and the fear of an insurmountable increase in their energy bills has already driven many to close. The announcement on Thursday was about as vague as it could get. We still don't know whether we will be able to afford electricity throughout the winter, and have to work under the assumption that we can't. The pressure on leisure businesses such as yoga studios is intense: higher bills and lower willingness by consumers to spend money on their wellbeing equals a perfect storm, and one that many may not be able to navigate after COVID. That's also bad news for communities, who need businesses such as ours to provide wellbeing services in a world where mental and physical health are increasingly deteriorating.