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U.K. to cap domestic energy prices, end fracking ban: Liz Truss

Click to play video: 'Liz Truss makes bold promises as Britain’s new prime minister'
Liz Truss makes bold promises as Britain’s new prime minister
WATCH: Liz Truss makes bold promises as Britain's new prime minister – Sep 6, 2022

British Prime Minister Liz Truss said Thursday that her government will cap domestic energy prices for homes and businesses to ease a cost-of-living crisis that has left people and businesses across the U.K. facing a bleak winter.

She also said she will approve more North Sea oil drilling and lift a ban on fracking in a bid to increase the U.K.’s domestic energy supply.

“We are supporting this country through this winter and next and tackling the root causes of high prices so we are never in the same position again,” Truss told lawmakers in the House of Commons.

Truss said the two-year “energy price guarantee” means average household bills will be no more than 2,500 pounds (US$2,872) a year for heating and electricity.

Read more: European Union to unveil new responses to energy crisis, commissioner says

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Bills had been due to rise to 3,500 pounds (US$4,000) pounds a year from October, triple the cost of a year ago. Bills are skyrocketing because of Russia’s invasion of Ukraine and the economic aftershocks of COVID-19 and Brexit.

Business and public institutions like hospitals and schools will also get support, but for six months rather than two years.

The government says the cap will cut the U.K.’s soaring inflation rate by four to five percentage points. Inflation hit 10.1 per cent in July and has been forecast to rise to 13 per cent before the end of the year.

The moves are a huge government intervention in the economy by a leader who sees herself as a small-state, free-market conservative. Truss says she favors tax cuts over handouts, but she has been forced to act by the scale of the crisis.

Click to play video: 'UK energy bills expected to skyrocket amid rising inflation'
UK energy bills expected to skyrocket amid rising inflation

The government hasn’t said how much the price cap will cost, but estimates have put it at over 100 billion pounds (US$116 billion). Truss has rejected opposition calls to impose a windfall tax on oil companies’ profits. The cap will be paid for out of Treasury funds and by borrowing.

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The opposition Labour Party says that means British taxpayers will have to foot the bill.

Labour leader Keir Starmer said “the bill will be picked up by working people” rather than oil companies that are forecast to make 170 billion pounds (US$195 billion) in windfall profits over next two years because of soaring prices.

The announcement, on Truss’s second full day in office, comes after a summer in which the government refused to say how it would respond. Former Prime Minister Boris Johnson was not able to make major decisions after announcing in July that he would resign. Truss, who won the Conservative Party contest to replace Johnson as leader, declined to announce her plans before she was in office.

Read more: Russia will stop selling oil to countries that set price caps, Kremlin says

The invasion of Ukraine has caused an energy crisis across Europe. Russia has choked off the supplies of cheap natural gas that the continent depended on for years to run factories, generate electricity and heat homes

Britain imports most of its natural gas — though largely from Norway, not Russia — and so is vulnerable to shifts in global prices.

“The reason we are in this difficult situation is because of (Russian President Vladimir) Putin’s appalling war in Ukraine,” Truss said. “But we do need to make sure that our energy supplies are more resilient and more secure, so we are never in this situation again.”

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Truss announced a new “energy supply task force” that will negotiate long-term energy contracts with domestic and international suppliers, and said Britain would ramp up all domestic energy sources. The U.K. has dramatically increased the amount of energy generated by wind power in recent years, and plans to build more nuclear power stations.

Truss also said she would issue more than 100 new licenses for North Sea drilling and end a ban on fracking in Britain. Both measures will be condemned by environmentalists, who worry Truss may backtrack on the U.K.’s legally binding commitment to reduce carbon emissions to net zero by 2050.

Britain suspended fracking in November 2019, saying it wasn’t possible to accurately predict tremors associated with the drilling.

Truss says she supports the net zero commitment but it should not come at a huge cost to people and businesses.

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