London Daily

Focus on the big picture.
Thursday, Jul 02, 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
UK DEFENCE AND TECHNOLOGY STRATEGY TILTS TOWARD SOVEREIGN CAPABILITY AND INDUSTRIAL INVESTMENT
UK ECONOMIC POLICY OUTLOOK SHAPED BY LEADERSHIP TRANSITION AND FISCAL SIGNALS
STERLING STRENGTHENS AMID SHIFTING MONETARY OUTLOOK AND GLOBAL LABOUR MARKET SIGNALS
UK HPV VACCINATION PROGRAM NEARLY ELIMINATES CERVICAL CANCER DEATH RISK IN YOUNG WOMEN
UK EXPANDS PRISON SAFETY REVIEW AS GOVERNMENT SEEKS WIDER SYSTEM REFORM
UK DRIVES DIGITAL ASSETS STRATEGY WITH NEW STABLECOIN REGULATORY MODEL
UK TO EXPAND AI INFRASTRUCTURE THROUGH NEW EUROPEAN TECHNOLOGY PARTNERSHIP
UK LAUNCHES £15 BILLION DEFENCE TECH SHIFT TOWARD ADVANCED MILITARY SYSTEMS
CIVIL SERVICE FACES SHIFT IN POWER STRUCTURE AS REGIONAL GOVERNANCE PLANS EXPAND
WHITEHALL CONSIDERS MAJOR DECENTRALISATION PLAN WITH SECOND GOVERNMENT HUB IN MANCHESTER
UK TARGETS SERVICES EXPORT GROWTH IN TRADE TALKS WITH CHINA AMID GEOPOLITICAL TENSIONS
POLICE WATCHDOG PROBES OFFICERS OVER HANDCUFFING OF DYING TEENAGER IN HAMPSHIRE CASE
UK REGULATORS UNVEIL DUAL OVERSIGHT FRAMEWORK FOR STABLECOINS AND DIGITAL ASSETS
KEIR STARMER ANNOUNCES £15 BILLION DEFENCE TECHNOLOGY BOOST IN FINAL MAJOR POLICY MOVE
ANDY BURNHAM SIGNALS STRICT FISCAL RULES AS LABOUR LEADERSHIP RACE SHAPES MARKET OUTLOOK
POUND STERLING HITS ONE-YEAR HIGH AS BANK OF ENGLAND SIGNALS NO IMMINENT RATE CUTS
UK Government Confirms Rejected Asylum Seekers to Remain Amid Enforcement Challenges
UK-China Economic Talks Focus on Services Trade and High-Value Sectors
Buckingham Palace Revamp Plans Unveiled to Modernise Royal and Public Facilities
Two Dead After Light Aircraft Crash in Essex Field, Investigation Underway
Princess Diana Marked at 65 With UK Tributes Reflecting on Her Public Legacy
England Teachers Face New Pay Cap Rules for Academy School Leaders Under Education Reform
Dublin Security Alert Escalates After Stabbing and Reports of Transport Disruption
UK Government Faces Scrutiny Over £10,000 Asylum Living Cost Contribution Requirement
England Prepares World Cup Knockout Match Against Democratic Republic of Congo
Northern Rail Project Warned of HS2-Style Cost Risks by UK Parliamentary Committee
UK Tightens Asylum Rules as Most Rejected Applicants Expected to Remain in Country
UK Heat Health Alert Issued as Temperatures Expected to Exceed 30°C Across England
Halifax Brand to Disappear From UK High Streets in Lloyds Banking Group Restructuring
England Teachers Receive 6.6 Percent Pay Rise Over Two Years as Schools Warn of Budget Strain
UK Defence Spending Plan Sparks Budget Clash as Regional Infrastructure Projects Face Pressure
Inquest Continues in Northern Ireland into Death of Noah Donohoe in Belfast
UK Travel Industry Calls for Suspension of New EU Border System During Peak Holiday Season
Telegraph Media Group Acquired by German Media Firm in £575 Million Deal Completion
House of Commons Warns Northern Rail Upgrade Risks Repeating High-Speed 2 Cost Overruns
UK Transport Unions Warn of Summer Strike Action Over Pay Disputes
UK Health Secretary Calls Maternity Care Review a “Watershed Moment” for NHS Reform
Nigel Farage Faces Questions Over £270,000 Payment Linked to Gold Marketing Firm
Labour Government Faces Internal Division Over North Sea Oil and Gas Policy Direction
National Screening Committee Invites New Proposals for UK Health Screening Programmes
UK and China Hold Industrial Strategy Talks on Trade and Export Growth Opportunities
UK Defence Funding Gap Widens as £4.7 Billion Shortfall Puts Pressure on Spending Priorities
United Kingdom Faces Historic Demographic Shift as Deaths Forecast to Exceed Births in England and Wales
United Kingdom Introduces Major Motability Scheme Reforms Targeting £1 Billion in Long-Term Savings
Global Billionaire Numbers Rise 13 Percent Amid Artificial Intelligence Stock Boom
Body of Fifteen-Year-Old Boy Recovered from Manchester Reservoir
Major Rail Disruption in UK After Cows Stray Onto Intercity Tracks
UK Launches National Campaign to Reduce Water Consumption After Heatwave
Foreign Secretary David Lammy Raises Case of UK Woman Death with US Authorities
Shetland Islands Council Approves Subsea Tunnel Plans Linking Major Islands
×