A cap on wholesale gas costs to effectively freeze current energy bills is being finalised by the government as it moves to shield households and businesses from soaring prices.
It is set to be the first major policy initiative of Liz Truss’s premiership as she takes over from Boris Johnson.
After months of criticism over a lack of additional help to manage the effects of energy-led inflation, which is at a 40-year high, details of the plan to tackle the cost of living are expected to be revealed on Thursday.
But early indications suggest a price freeze is on the way – and the Treasury may shield families completely from covering the cost of the scheme, meaning the cost will not be passed down through future bills.
A government source has told Sky News that the Treasury would effectively provide financing, directly through government borrowing rather than state-backed loans, to cover rising wholesale gas costs for both households and businesses.
This would allow domestic gas and electricity suppliers to provide energy at around their current average annual rate – possibly until the next election in 2024 – as wholesale prices continue to soar in the face of Russia’s war in Ukraine.
The plan would amount to a government-imposed price guarantee.
The freeze could, the source indicated, be set at £2,500 – but bills would fall back to the current level of around £2,000 once the £400 grant for every household and other bill adjustments are factored in.
The Bloomberg news service, citing sources, put the cost of the wholesale cap for businesses at around £40bn over six months alone.
The overall plan could place the taxpayer on the hook for well in excess of £100bn over the next year, depending on wholesale price levels, it is understood.
The promise of additional help follows an unprecedented surge in the price of raw energy, exacerbated by Russia’s invasion in February.
Although the energy price cap shielded households from the worst of the early increases, leaving suppliers to shoulder the burden, the price cap reviews and predictions of cap levels to come have become a nightmare scenario.
It was announced last week that the cap, which covers the vast majority of households, would rise 80% to an average annual total of £3,549 from October.
There is speculation that sum could exceed £5,000 next year.
Businesses, which are not covered by the price cap, have had to swallow rising gas and electricity costs much earlier, exposing them to bills that are unsustainable risking jobs and further inflation as they pass on costs to customers.
It is understood that firms, though not necessarily big business, will receive additional help to mitigate the energy increases already seen.