Keir Starmer vows to extend windfall tax to freeze fuel bills in Labour’s ‘emergency’ cost of living plan

Sir Keir Starmer has vowed that people will not pay “a penny more” on their winter energy bills as he unveils Labour’s plan to ease the cost of living crisis.

The Labour leader has set out the party’s £29 billion emergency plan to stop energy bills rising over the winter - paid for in part by an extension of the windfall levy on the profits of the oil and gas companies.

Sir Keir said his “fully-funded” proposals are a direct response to a “national economic emergency” and under his plan, consumers would not pay “a penny more” for their gas and electricity over the coming months, saving the average household £1,000.

As well as pledging to freeze the energy price cap at its current level of £1,971 for the average household, Sir Keir said a Labour government would insulate 19 million of the coldest homes over the next decade, further reducing bills.

The said scrapping the planned increases in the cap, which is predicted to rise to more than £3,500 in October and could top £4,000 in January, would cut inflation by 4% and make future interest rate rises less likely.

The party said the price freeze would mean that it would not go ahead with the £400 rebate on energy bills, which the government has promised all households in October, to soften the impact of rising prices.

Asked about the potential length of the freeze, Labour leader Sir Keir Starmer told BBC Radio 4’s Today programme: “We’ll have to assess the situation in April according to the forecasts as they then are and we’ve waited for this plan for all the credible forecasts, the last of which came out last Tuesday.”

He added: “It’s all very well having short-term answers which we do need to have, what’s the medium and long term plan and that’s why just about a year ago, I was making the argument that for the 19 million houses that need insulating and are leaking huge amounts of heat and energy, we need a comprehensive plan to have insulation on those.”

Sir Keir added that Labour was also committed to measures to increase the UK’s energy security, doubling onshore and offshore wind capacity, investing in solar, tidal and hydrogen, and bringing forward new nuclear capacity.

He said: “Britain’s cost-of-living crisis is getting worse, leaving people scared about how they’ll get through the winter.

“We’ve had 12 years of Tory government that has failed to prepare and refused to invest, leaving bills higher and our country less secure.

“This is a national emergency. It needs strong leadership and urgent action.

“Labour’s fully-funded plan would fix the problems immediately and for the future – helping people get through the winter while providing the foundations for a stronger, more secure economy.”

However, the Institute for Fiscal Studies (IFS) questioned Labour’s explanation as to how it would fund the support package, saying some of its proposals were an “illusion”.

How does Labour plan to pay for the measures?

To pay for the £29 billion emergency package, Labour said it would close a “loophole” in the levy on the profits of the energy companies announced by Tory leadership candidate Rishi Sunak in May, when he was chancellor, and backdate the start to January. This, together with rising global prices, would bring in £8 billion.

The party said £14 billion would come from other measures, such as dropping the £400 energy rebate and abandoning pledges made by the the Tory leadership contenders – such as halting the “green levy” on fuel bills, which Liz Truss is proposing, or scrapping VAT on domestic fuel bills as Mr Sunak has promised.

By keeping inflation down, which it said would peak at about 9% rather than the 13% the Bank of England is forecasting, Labour said it would reduce the government’s debt interest payments by another £7 billion.

However, IFS director Paul Johnson warned that inflation would quickly pick up again once the subsidies ended meaning the cost of servicing the debt would also increase.

He 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 in the long run. Inflation will be higher later on.”

Responding to the IFS’s comments on Labour’s plan, Sir Keir told BBC Breakfast: “What Paul Johnson (IFS director) isn’t disputing is that our plan will reduce inflation, so he’s absolutely clear that, that is the case.

“Of course what he’s rightly saying is what happens after April matters because you have to maintain measures to reduce inflation. Of course we have to do that in April when we see the circumstances, but what he’s not suggesting is that we’re wrong when we say that our plan will reduce inflation.”

Labour also set out a package of support for business with a £1 billion contingency fund to support energy intensive industries – such as ceramics, glass and steel – as well as an increase in the business rates threshold for small businesses.

The party said it would be financed through an increase in the rate of the Digital Services Tax (DST) this year, raising at least £2 billion from the most profitable global tech giants.

Sir Keir’s plan will heap the pressure on Ms Truss and Mr Sunak to set out what they would do to help families struggling with soaring bills if they become Prime Minister.