Truss warms to wholesale gas price cap to freeze energy bills

A cap on wholesale gas costs to freeze energy bills at their current level is being finalised by the government as it moves to shield households and businesses from soaring prices.

The action is set to be the first major policy initiative of the Liz Truss premiership as she takes over from Boris Johnson.

Following months of criticism over a lack of additional help to manage the effects of energy-led inflation – currently at a 40-year high – details of the plan, described by a source as “shock and awe”, to tackle the cost of living are expected to be revealed on Thursday.

The early information comes with a big health warning as details are still being ironed out with generators and suppliers but it seems the Treasury would effectively guarantee financing to cover rising wholesale gas costs.

This would allow gas and electricity suppliers to sell energy to households and businesses at around their current rate for the foreseeable future – possibly until the next election in 2024 – as wholesale prices continue to soar amid Russia’s war in Ukraine.

According to the Bloomberg news service, the plan would amount to a government-imposed price guarantee that would effectively replace the cap system for homes.

It added that a cut in the green levy would help maintain average annual bills at around the £2,000 level.

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It would place the taxpayer on the hook for up to £100bn over the next year alone, depending on wholesale price levels, it is understood.

The money, it is believed, would be recovered through bills but spread way into the future and possibly over decades.

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The promise of additional help follows an unprecedented surge in the price of raw energy, exacerbated by Russia’s invasion which began last February.

While 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.

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