Labour’s energy price freeze: fact checked

Labour’s fully-funded plan would fix the [energy bill] problems immediately and for the future.

In a statement launching his party’s plan to freeze domestic energy prices, Labour leader Sir Keir Starmer described it as “fully-funded”. He also said the plan was “fully costed” on BBC Radio 4’s Today Programme on the morning of 15 August.

However, about £2 billion out of the £29 billion projected cost of the plan may be unfunded, and this money would therefore have to be raised somehow. Labour does not appear to have accounted for this. 

There’s also some uncertainty over whether Labour has accurately estimated the number of households that may need support.

What Labour is suggesting

Labour’s plan would involve freezing the energy price cap for household electricity and gas at the current levels, as set by the regulator Ofgem, for six months between October 2022 and April 2023.

The price cap limits the prices paid by customers using prepayment meters and on variable or default tariffs, but not those on fixed-rate tariffs. A forecast by Cornwall Insight suggests the cap (currently about £2,000 per year on average) could more than double in the winter.

Labour’s package also includes support for households that use off-grid fuels like gas canisters and kerosene to power their homes.

The party says this package would cost around £29 billion.

Documents Labour shared with Full Fact show that it proposes to pay for the plan with money from a mixture of sources, including:

• An additional tax on oil and gas producers (£8 billion)
• Estimated savings on debt interest payments due to its forecast reduction in inflation (£7 billion)
• Diverting the money that the government already plans to spend on the £400 bills discount (£12 billion)
• Not going ahead with either of two proposals from the Conservative leadership candidates: cuts to green levies, proposed by Liz Truss, or cutting VAT, proposed by Rishi Sunak (Labour estimates that either of these is expected to cost about £2 billion over six months).

The problem here is that Ms Truss’s and Mr Sunak’s proposals are not current policy, so any government that implemented them would have to find that £2 billion cost somehow.

By the same token, not implementing either plan doesn’t make £2 billion available to spend on something else, without cutting some other part of government spending or increasing tax or borrowing, which Labour has not suggested it would do.

The Economics Editor of BBC Newsnight, Ben Chu, has also pointed this out. Carl Emmerson, deputy director of the Institute for Fiscal Studies, told him that this approach was “questionable”.

Full Fact asked Labour whether it is correct to call the plan “fully funded” for this reason, and was told the party felt it was standard practice for opposition plans to be compared with expected government spending at the time.

How many households would need support?

There’s also a question about whether Labour has accurately estimated the number of households that would be affected by its plans.

Labour shared figures with Full Fact showing that it calculated the total cost of its plan by combining the estimated costs for what it says are the number of the customers in Great Britain paying by direct debit (15 million), by standard credit (5 million), with prepayment meters (4 million) and who are “neither on the gas nor the electricity grid” (2.7 million). This final figure appears to be a large overestimate—equivalent to around 1 in 10 households in Great Britain having no mains electricity or gas connection.

Ofgem told Full Fact that about 3.5 million domestic properties were not connected to the gas grid in England in 2020, or about 4.1 million in the whole of Great Britain.

But the number of households not connected to the electricity grid appears to be much lower. Ofgem said it wasn’t aware of any comprehensive data on the subject, but it estimated that the total may be around 500-2,000.

Even if all these households were also not connected to gas, the total number of off-grid households would be far lower than the 2.7 million suggested by Labour.

When we asked Labour for a source for its 2.7 million figure, it clarified this was an estimate of the number of homes that do not use mains electricity or mains gas for heating—but they still may use mains electricity for other things.

This is based on research from Citizens Advice in 2016, which found that 73% of households that are off the gas grid heat their home with fuels as opposed to electricity. 

Labour applied this 73% figure to the number of homes off the gas grid, which it put at 3.7 million, to produce its 2.7 million figure.

This may not be reliable, as the estimate for the proportion of homes off the gas grid is six years old. 

Otherwise, Labour’s estimate that a total of 24 million on-grid energy customers in Great Britain would be protected by freezing the price cap does line up with Ofgem’s figures from last month.

Image courtesy of Brett Jordan