Keir Starmer calls for extra windfall tax to freeze energy bills

Sir Keir Starmer has said families would "not pay a penny more" on their energy bills this winter under Labour's plans to tackle rising living costs.

The Labour leader claimed his proposals would save the average household £1,000.

The package would be paid for, in part, by a big increase in tax on oil and gas company profits.

But economists said the plan would cost as much as the Covid furlough scheme, if it was extended beyond this winter.

The government has already announced what is says is £37bn of support for hard-pressed families, but it is under pressure to do more, with bills set to rocket over the winter.

Outgoing Prime Minister Boris Johnson has said he is "making sure there is extra cash" for his successor to provide extra support, when they take office on 5 September.

• How high will my energy bill go?

• How does the windfall tax on energy firms work?

• How will I get the cost-of-living payments?

The Treasury are working up ideas for how the new prime minister could provide more help with living costs.

But the two contenders for the job, Liz Truss and Rishi Sunak, have indicated they are not keen on extending the windfall tax on oil and gas companies - or freezing the price cap - meaning its unlikely to happen unless they have a change of heart.

Labour's intervention serves as a challenge to both leadership hopefuls to say what further support they may offer, and how they would pay for it.

The party says its plan would be paid for in three ways:

• Backdating the windfall tax to January and accounting for higher oil and gas prices to raise £8bn

• Dropping the £400 energy rebate and other pledges made by Tory leadership candidates to raise £14bn

• By reducing inflation with lower energy bills, leading to a cut in government debt interest payments of £7bn

The Labour leader said freezing the energy price cap at the current level of £1,971 a year for the typical household would bring inflation down by four percentage points.

Inflation - the rate at which prices rise - hit 9.4% in June, the highest level for more than 40 years. The Bank of England has warned it could peak at more than 13% later this year.

Labour estimate their plans would cost about £15bn more than the government's scheme to give households £400 this October (and Liz Truss and Rishi Sunak's proposals).

Labour estimate that about £3.5bn of their extra spending would come from changes to the government's windfall tax on oil and gas companies - including making it apply to profits from January rather than May and getting rid of a government tax-relief scheme to encourage investment from these firms.

The party also expects to get £4.7bn extra in existing taxes because oil and gas prices are now likely to be much higher than they were when the last official forecasts were made.

And Labour say that freezing energy prices would stop inflation rising as high as it would have done otherwise. They estimate this would reduce government borrowing costs by £7.2bn this year.

But economists warn it's delaying borrowing costs rather than saving them - they say that stopping the subsidy would push up inflation and borrowing costs.

The main reason for high inflation is soaring energy bills, driven by Russia's invasion of Ukraine, although households have also been hit by higher petrol, diesel and food costs.

Sir Keir said he would have to "assess" the situation in April, but Labour's plans were about helping people through the winter.

He added further measures to reduce inflation may be needed next year, and argued in the medium to long term Labour was calling for further measures to bring costs down such as insulating millions of homes.

Meanwhile, Mr Johnson and Sir Keir have both been criticised for going on holiday as economic turmoil - driven by rising energy bills - deepens.

The Labour leader rejected claims he has been missing in action, saying he had been working on his plan for weeks and would not "apologise for going on holiday with his wife and kids".

"It's the first time we've had a holiday for about three years," he said.

Former Cabinet minister Brandon Lewis rejected suggestions that Mr Johnson had "thrown in the towel".

He told LBC radio: "Even when you are not in the office in Downing Street you are working."

It comes as the independent Institute for Fiscal Studies (IFS) said the government would need to find £12bn simply to achieve what it was aiming to do with the £24bn package announced in May, due to soaring energy prices.

The think tank said that in May energy prices were expected to rise by 95% in 2022/23 but are now expected to rise by 141%.

Paul Johnson, director of the IFS, told the BBC Labour's plan was "a very big and very expensive plan" that would be on the same scale of support for the public as the furlough scheme during the pandemic, if it was extended beyond the initial six months planned.

"Of course, what it does achieve is to protect everyone entirely from the increases in energy prices so if that is what you want to achieve that is what you need to do but you do need to realise that is a very expensive thing to do," he added.

The idea of freezing the price cap is backed by the Liberal Democrats and the SNP.

A Treasury spokeswoman said the government had "continually taken action to help households by phasing in £37bn worth of support throughout the year".

This includes £400 off energy bills for all UK households and an additional £650 for eight million low-income households.

Additional reporting: Becky Morton