Outlining radical plans to tackle the energy crisis, the New Economics Foundation (NEF) thinktank said a “free basic energy” scheme could start as early as next year to replace a consumer price cap on gas bills and electricity. Households could pay for their energy use up to a certain level, helping the less affluent stay warm as Russia’s war in Ukraine drives up wholesale energy prices. Usage above the limit will then be charged at a higher price than usual to incentivize energy efficiency and lower consumption – helping to support net zero targets. Industry leaders and think tanks are putting forward ideas for the new prime minister to consider as rising energy prices push inflation to its highest level in 40 years. Households are bracing for a rise in the cost of living after Ofgem, the energy regulator, confirmed an 80% rise in the price cap from October to £3,549 a year. Forecasters estimate this figure could rise to more than £6,000 from April 2023 – more than 500% higher than pre-Covid levels – if current wholesale energy prices are maintained. Setting out plans to help poorer families with soaring bills and cushion the effects of a looming recession, the NEF said a three-pronged approach was needed, including benefit reforms and lump sum payments for all households. The left-wing thinktank said a limit of 8,000 kilowatt-hours a year without natural gas and 2,000 kWh of electricity could be funded by the government. Based on current price estimates in April 2023, this would mean just under £4,600 in free energy per household. In addition, the NEF said the government’s windfall tax on oil and gas producers could be extended to raise £22bn, with the proceeds used to pay for a new £750 “cost of living allowance” for every household. Finally, the thinktank says a new “energy element” could be introduced to universal credit and inheritance benefits worth £1,000 for a single person and £1,650 for a couple, helping poorer households meet the cost of higher bills over and above the entitlement free energy. The thinktank said the total cost of the package would be around £46.2bn, arguing that this would be cheaper than Labour’s energy price freeze, while providing better targeted support than promised by Liz Truss or Rishi Sunak in the Conservative leadership contest. Labor has pledged to freeze the energy price cap at the level set in April – just under £2,000 a year – saying it would cost £29bn. However, NEF warned that the plan could not be sustained beyond the coming winter and, combined with rising wholesale energy prices, would cost well over £100bn a year. Truss’s plan to reverse the rise in national insurance would cost more than £10bn, while significantly cutting support for higher-income families. Instead, NEF said its plans would raise net incomes on average for all but the top 20% of families. Alfie Stirling, director of research and chief economist at NEF, said an emergency freeze on the price cap was needed to buy time, but was not sustainable for more than a few months. “We need a sustainable solution that combines lower energy bills, incentives and support to increase energy efficiency and a permanently stronger income safety net,” he said. “NEF’s proposed support package responds to this need: free basic energy for all paid for by higher energy prices for those who use the most. a permanent new energy element in universal credit. and a new means of paying all families in the UK quickly in times of crisis.’
