London Daily

Focus on the big picture.
Wednesday, Aug 05, 2026

Credit Starmer for having an energy crisis plan - but it's a questionable short-term fix

Credit Starmer for having an energy crisis plan - but it's a questionable short-term fix

But nevertheless, there are big holes in Labour's plan to tackle the crushing cost of living crisis facing the UK.

Credit Sir Keir Starmer for at least trying to come up with a costed plan to tackle the UK's burgeoning household energy bill crisis.

It's more than Boris Johnson's zombie government, or the two people vying to succeed him, have done.

That said, Labour's proposals to freeze the energy price cap at the present £1,971 at best raise more questions than answers. At worst, they are deeply flawed.

Firstly, the arithmetic. Labour has costed its plan at £29bn for six months.

The lion's share of this would come from the £14bn saved in not paying the flat £400-per-household rebate on energy bills the government is promising from October. That much is beyond dispute.

A further £8bn would come from backdating the government's 25% levy on the profits of oil and gas producers in the British North Sea, announced in May by then chancellor Rishi Sunak, to January this year and by closing what Labour describes as the "absurd loophole" in the levy - the 91p-in-the-pound tax relief that the government is making available to oil and gas producers investing in new projects in the region.

The remainder would come from £7bn that Labour says would be saved by a reduction in interest payments on government borrowing as a result of the lower inflation that would ensue from keeping household energy bills down.

The latter two assumptions, though, are questionable. When Mr Sunak announced his windfall tax on the profits of North Sea oil and gas producers, he predicted it would raise £5bn over its first year, so Labour is clearly assuming an extra £3bn can be raised by backdating the tax to January and by scrapping the tax relief offered on new investments.

That assumption is doing some heavy lifting. It is very hard to say how much more this measure will raise.

Politicians - and some in the media - like to single out the global oil and gas giants like BP and Shell and, accordingly, much was made of the comments from Bernard Looney, BP's chief executive, when he said in May that a windfall tax would not affect BP's plans to invest £18bn in the UK during the rest of the decade.

But BP and Shell are big global companies and only a very small proportion of their profits are derived from the British North Sea.

The vast majority of production in the region these days is accounted for by companies less well-known to the public, such as the FTSE-100 newcomer Harbour Energy, Israeli-owned Ithaca Energy, UK-listed Serica Energy and Equinor, the Norwegian state-owned oil and gas producer.

The first three of those in particular are far smaller than the oil supermajors and far more dependent on the British North Sea - and their investment plans for the region are, accordingly, much more sensitive to windfall taxes.

Many of these companies, including Equinor, were already questioning their planned investments following Mr Sunak's levy.

It is likely that the questioning would intensify were Labour's proposals to see the light of day.

As questionable are the assumptions being made about the interest payable on government borrowing. Yes, if inflation comes down as a result of household energy bills being capped, that would temporarily reduce an element of those debt interest payments.

But these proposals are only for six months - and so, when bills began to rise again, so would inflation and that component of the national debt linked to inflation.

As Paul Johnson, director of the independent Institute for Fiscal Studies, told the Daily Telegraph: "It's an illusion in the sense that it will reduce interest debt payments in the short term but unless you maintain these kinds of subsidies permanently, it won't reduce them later on. Inflation will be higher later on."

Perhaps the biggest problem with Labour's proposal though, is that this is only a short-term fix, seeking to alleviate pain for households in the immediate term.

There is nothing in it, by the way, for hard-pressed business consumers of energy - many of which could be forced over the edge by higher energy bills.

Moreover, there is nothing in these proposals to tackle the fundamental problems faced by the UK around energy supply and demand.

Capping household energy bills at the existing level will do nothing to bring down energy consumption or to encourage households to invest in energy-saving measures such as insulation, solar panels or heat pumps. Nor will it do anything to tackle the supply side of the equation.

Britain does not buy much gas from Russia, but it is now competing for gas supplies with those countries that do, which is the main reason why wholesale energy prices are rising.

The biggest way of guaranteeing lower wholesale prices in the longer term is to either reduce energy demand or promote an increase in energy supplies.

These proposals do neither.

To that extent, they are reminiscent of George Osborne's Help to Buy scheme, which propped up housing demand - if not to say boosted it - while doing nothing to increase housing supply.

Newsletter

Related Articles

0:00
0:00
Close
Spain and Morocco Trade Blame After 72,000 Migrants Enter Ceuta
Met Police Investigated Journalist Who Questioned Cambridge Professor
Badenoch Defends Tory Candidate Jailed for Antisemitic Abuse of Luciana Berger
NHS Spends £240m a Year Storing Paper Records Despite Digital Push
Apple Seeks Court Order to Stop OpenAI Using Alleged Trade Secrets
Breaking With the Past: One of the World’s Smallest Countries Changes Its Name
AI Is Remaking the US Economy, From GDP Growth to iPhone Prices
Comcast: Tied to a Chair and Hit in the Face With Cake: The Regular Humiliation Ritual at the US Corporate Giant
Aston Martin Faces Legal Threat Over £550m Rescue Deal
Reform UK Wants the Royal Navy to Return Channel Boats to France
US and Japan Step In to Support the Yen in Rare Joint Intervention
The AI Pricing Problem: Companies Cannot Predict Their Own Bills
Europe’s Heat and Drought Are Now Disrupting Power, Shipping and Tourism
Apple’s OpenAI Lawsuit Becomes a Public Fight Over AI Hardware
UK Man Jailed After Keeping His Mother’s Body in a Freezer and Claiming £78,000
A SpaceX Rocket Is About to Crash Into the Moon — and Scientists Hope to Watch
World War II munitions discovered after wildfires in southern France
BP profits reach four-year high amid Middle East conflict
Europe’s Drying Rivers Trigger Power Cuts, Factory Shutdowns and Wildfire Emergencies
UK Driver Sentenced to Four Years for Staged Electric Vehicle Brake Failure Fraud
Conservative Party and Reform UK Face Scrutiny During Clacton By-Election Campaign
Ministry of Justice Reviews Early Release Rules After Public Anger Over Police Killer Cases
NHS Radiographers Report Rising Racist Abuse From Patients Across UK Hospitals
UK Banking Regulators Face Pressure After Customer Loses Fourteen Thousand Pounds in AI Voice Scam
Research Challenges Treasury Control Over UK Public Spending and Calls for Greater Local Decision-Making
Home Office Begins Four-Week Weapons Surrender Campaign Across Major English Cities
Southern England Records Driest July in Nearly Two Centuries as Drought Concerns Grow
Apple Challenges UK Government Request for Access to Encrypted User Data in Legal Fight
BP Reports Sharp Profit Increase as Middle East Conflict Drives Global Oil Prices Higher
Nigel Farage Expresses Openness to Potential Alliance with Restore Britain
AstraZeneca Merger Talks Reflect Intensifying Pharmaceutical Consolidation
University Merger May Set Template for Higher Education Reform
Apple's Legal Challenge Highlights Growing Tension Over Encryption and Surveillance
Prime Minister Andy Burnham's Agenda Signals Shift Toward Greater Regional Devolution
Mental Health Trust Faces Criticism Over Planned £25 Million Budget Cuts
Scientists and Cultural Leaders Call for Funding to Save Jodrell Bank Observatory
UK Manufacturing Output Reaches Highest Level in Nearly Two Years
University of Greenwich and University of Kent Complete Landmark Merger
Nigel Farage Unveils Naval Border Proposal Amid Questions Over £5 Million Donation
Prime Minister Andy Burnham Pledges Tougher Action on Small Boat Crossings
Apple Challenges UK Government Over Encrypted Data Access Demands
AstraZeneca Shares Fall After Reports of $400 Billion Bristol Myers Squibb Merger Talks
Triple Lock Lifts UK State Pension but Leaves a Wider Retirement Gap
Danube Drought Forces Hungary’s Paks Nuclear Plant Into Full Shutdown
Ceuta Death Toll Rises as Spain and Europe Clash Over Border Response
Cuba’s Grid Fails Again as Fuel Crisis Deepens
Nazca Lines Flight Crash Kills Thirteen as Peru Suspends Aerodiana
Modern Slavery Decisions Broaden the Al Fayed Inquiry’s Frame
FIFA’s Retreat Leaves a Larger Question Over Who Guards the Game
Two Firefighting Crew Members Die in Helicopter Collision West of Athens
×