London Daily

Focus on the big picture.
Wednesday, Jul 08, 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
Federal Financial Framework Shifts as Treasury Launches Universal Savings Program for Minors
Jet2 Reports Strong Summer Travel Demand as Bookings Rise Seven Percent
Prince Harry Loses High Court Privacy Case Against Daily Mail Publisher
British Universities Warn Against Potential European Union Tuition Fee Changes
Heal Fertility Clinic Investigated After Embryo Biopsy Sample Mix-Up
Resolution Foundation Warns Regional Income Divide Has Barely Improved Since 1997
British Markets Remain Cautious as Middle East Tensions Rise and Government Transition Nears
Andy Burnham Poised to Become United Kingdom Prime Minister in Expected Political Transition
Nigel Farage Resigns as Member of Parliament Ahead of By-Election Amid Funding Investigation
Trump Declares Iran Ceasefire Over After Renewed Attacks on United States Bases
French Court Allows Le Pen to Run for Presidency, but with an Electronic Tag: "I Will Appeal, and I Will Run"
$1.4 Trillion: The Lawsuit That Could Crush Meta
Europe's Growing Struggle with Extreme Heat and Air Conditioning
UK Daily Briefing: Legal Developments and Social Issues
Political Turmoil and Rising Costs
Anthropic Reengineers Agentic Architecture to Shift Autonomous Workplace Automation to the Cloud
Logic Flaw in Windows 11 Permission Architecture Silently Consumes Hundreds of Gigabytes of Local Storage
Apple Advances Late-Stage Operating Systems with Fourth Beta Deployments
Global Crisis Alert: Escalating Middle East Tensions and UK Political Upheaval
UK Parliament Pushes for Greater Domestic Control Over Critical Technologies
UK Parliament Warns Trade Fair and Exhibition Industry Is Losing Global Competitiveness
Police Launch Murder Investigation After Mother and Two Children Found Dead Near Bedford
British Chambers of Commerce Survey Shows Business Confidence Falls to Post-Pandemic Low
UK Parliament Report Warns Britain Risks Falling Behind in Artificial Intelligence Sovereignty
Office for Budget Responsibility Warns United Kingdom Faces Long-Term Fiscal Pressures
Nigel Farage Resigns as Member of Parliament Amid Financial Scrutiny and Triggers By-Election
Deep Purple Has Released Its Best Album in Decades
UK MPs Criticise Student Loan System as Potentially Mis-Sold to Millions of Borrowers
Policy Groups Propose Bank of England-Backed Solar Loan Scheme for Millions of Homes
UK Health Agency Issues Amber Heat Alerts Across Six Regions as Temperatures Rise
Royal Air Force F-35 Jets Conduct First High North Air Policing Missions From Aircraft Carrier
Major UK Companies Join Government Cybersecurity Pledge Amid Rising Digital Threats
UK Sanctions Russian Operatives Linked to Chemical Weapons Programmes and Poisoning Cases
UK Government Expands Free Breakfast Clubs and Limits School Uniform Costs
UK Water Companies Face Tougher Penalties Under New Environmental Enforcement Rules
UK Universities Warn Funding Cuts Could Damage Skills Pipeline and Economic Growth
NHS Expands Artificial Intelligence Tools to Help Reduce Patient Waiting Lists
NHS Ombudsman Criticises Failures in End-of-Life Communication and Patient Care
NHS Launches Nationwide Vaccination Drive After Rise in Measles Cases
UK Government Introduces New Limits on Foreign-Linked Political Donations
Thames Water Creditors Advance £10 Billion Rescue Plan to Prevent Potential Public Ownership
Andy Burnham Prepares Labour Leadership Platform as Party Faces Post-Starmer Transition
UK Met Office Issues Heatwave Alerts for London and Southern England
Keir Starmer Blocks Earlier World Cup Kick-Off Time for England Match Against Mexico
NHS Digital Transformation and Media Consolidation Highlight UK Policy Priorities
UK Government Pushes Digital Trade Rules to Cut Export Costs for Businesses
Bank of England Plans Leverage Rule Changes to Support Government Bond Market
UK Police Operation Targets Organised Immigration Crime Networks With Hundreds of Arrests
Yvette Cooper Calls for Global AI Rules to Prevent Security Risks
NHS Begins Major AI Expansion Through £10 Billion Digital Investment Programme
×