Truss favours tax cuts over direct support

Liz Truss, the favourite to become Britain’s next prime minister, said on Tuesday she still favoured tax cuts over direct support to households that are facing a 230% leap in annual energy bills in January to about £4,200.

The Bank of England has warned that Britain is on course for a long recession as unprecedented energy prices push inflation towards 13%. Charities, business groups and politicians have urged the government to set out support plans.

Truss’s rival for the top job, Rishi Sunak, announced a £15bn package when he was chancellor of the exchequer in May. That included a £400 energy bill credit for this winter. Since then wholesale energy costs have soared even higher.

Asked how she would respond, Truss said she would deal with circumstances as they arose, but she favoured cutting taxes to grow the economy.

“What I don’t believe in is taxing people to the highest level in 70 years, and then giving them their own money back,” she told reporters, when asked about direct support.

GREEN LEVIES

She has also vowed to halt green levies, which would cut bills less than 8%.

Truss’s response sparked alarm on social media on the day that forecasting group Cornwall Insight set out its new estimates and amid concern that the Conservative leadership race has left a political vacuum in the government. Outgoing Prime Minister Boris Johnson has said any new policy should be set by his successor after taking office on September 5.

Cornwall Insight now expects the cap on a typical household energy contract to rise 82% in October, adding to the 54% rise that came into force in April. It will take average annual bills for gas and electricity to £3,582, due to soaring wholesale costs and changes in the way the cap is set.

The cap is then expected to rise to £4,266 in January, compared with Cornwall’s previous forecast of £3,616. The price cap was £1,277 earlier this year.

“It is essential that the government use our predictions to spur on a review of the support package being offered to consumers,” Cornwall Insight consultant Craig Lowrey said.

Ed Miliband, energy spokesperson for the opposition Labour party, described the increase as “catastrophic”. Consumer campaigner Martin Lewis said it would leave many people destitute, and the “zombie” government had to wake up. Critics have said that a move to cut taxes would benefit the wealthy over the poorest households. Sunak’s campaign described it is “divorced from reality”.

Cornwall Insight’s estimate was revised higher after changes made in the way the cap is calculated by regulator Ofgem. It said it may be time to discuss whether the cap system should be scrapped.

Energy suppliers typically hedge, or buy in advance, energy to help protect from price shocks, yet many struggled to keep pace with volatile and record high wholesale gas prices in the past year. More than 20 suppliers went bust.

Ofgem said last week that suppliers could recover some of their hedging costs by adding them to household bills over a shorter time frame.

Ofgem said Cornwall’s forecast for January should be viewed with caution due to volatile wholesale markets.