If the opinion polls are to be believed, and barring any miracles, on 5 September, the Foreign Secretary, Liz Truss, will be elected as the new Conservative leader in a ballot of her party’s members and will then become the UK’s next Prime Minister.
However, the celebrations will be short-lived, and the new Prime Minister will have to act immediately to tackle the issue that will define her time in Number 10 – the biggest cost of living crisis in living memory.
Despite energy prices dominating the media and political agenda for the last few months, Ms Truss, and her leadership rival Mr Sunak, have remained relevantly silent on what measures they’ll introduce to alleviate the soaring price of energy if they were to become Prime Minister.
With some observers now saying energy bills could exceed mortgage payments towards the end of next year, today’s (26 August 2022) announcement by Ofgem that the energy price cap is jumping to £3,549 per year, will place further pressure on consumer finances and will add to the biggest squeeze on living standards in a generation.
Initially reluctant to offer additional ‘handouts’ instead preferring tax-cutting measures over targeted help for energy bill costs, Ms Truss has recently signalled she could deliver more direct support to struggling households, however, details remain intentionally vague. While she has publicly pledged to reverse the national insurance rise and abolish the green levies on energy bills, it is clear this will not be enough and Truss will soon face significant pressure from MPs to offer additional ‘handouts’. Though she continues to keep any plans she may have concealed for now.
Employers will also be expecting support from the Treasury in the coming weeks as roughly 70 per cent of businesses are set to renew their fixed-term energy deals this October. The Federation of Small Businesses has warned of a “cost of doing business crisis” and has also called on the government to intervene to prevent thousands of companies from passing on energy price hikes to consumers.
To combat the problem, the financial pressures on the new Prime Minster and her Treasury will be enormous. How this will impact existing priorities and levelling-up agenda remain to be seen, however, to illustrate the scale of the issue facing the government, Business Secretary Kwasi Kwarteng, who is widely expected to become the next Chancellor, recently held talks with energy bosses about a £100 billion package to freeze bills for two years. Insiders have played down the prospect of it being approved, but to put this number into some context, the furlough scheme, where 11.7 million employee salaries were secured, cost the government £70 billion.
The Labour party has proposed a £29bn plan that would prevent the energy price cap from rising further, paid for by extra tax from oil and gas firms, although, it has been widely reported that this will not be enough money to stop household bills from increasing this winter.
Ms Truss has ruled out any further windfall taxes on energy companies, but with no firm commitment from her on how she is going to support businesses and households, her administration will be expected to act immediately to provide the necessary assurances. Insiders are discussing the 14 and 21 September as potential dates for an emergency budget with a second fiscal event – a spending review setting departmental budgets – expected later in the year.
Given that forecasters suggest energy bills could rise to £6,823 next year, the cost of living squeeze and the “cost of doing business crisis” is far from over. In a moment of perhaps candid honesty this week, Truss said ‘If people think this problem is going to be over in six months they’re not right.’
With one eye on the next General Election, expected in 2024, Ms Truss will now need to show those who “lent” Boris Johnson their votes in 2019 securing his majority, that she and not Kier Starmer, has the right solutions to the biggest squeeze on living standards in 40 years.
Millions across the country now wait until Monday 5 September with bated breath to find out just what these solutions are going to be.