UK's Truss freezes energy bills in first big policy shift

New British Prime Minister Liz Truss has said domestic fuel bills will be frozen for two years, marking her first week in office with a costly plan to tackle a worsening cost-of-living crisis.

Two days after taking over, Truss unveiled on Thursday emergency measures that include authorising more oil and gas drilling in the North Sea and lifting a ban on fracking, a controversial method to dig for fossil fuels.

The government said it would also review progress towards its legally enshrined target to achieve net-zero carbon emissions by 2050, to ensure no "undue burdens on businesses or consumers", but stressed it remained committed to the goal.

Households are facing an 80-percent hike in gas and electricity bills next month due to the rise in the cost of wholesale energy made worse by a squeeze on supplies after Russia's offensive against Ukraine.

Businesses whose bills are not capped have warned they could go to the wall because of even bigger rises, while inflation has reached 40-year highs of 10.1 percent and is predicted to go worsen.

"Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again," Truss said.

READ MORE: UK PM Truss holds first cabinet meeting amid energy crisis

'Substantial benefits'

The government expects the state-backed energy scheme to cost tens of billions of pounds (dollars), but Truss and new finance minister Kwasi Kwarteng insisted it would have "substantial benefits" to the economy.

It would curb inflation by four to five percentage points, they said in a statement.

Kwarteng said the freeze means worried households and businesses "can now breathe a massive sigh of relief".

Tackling the cost-of-living crisis, which has led to widespread strike action over pay, threatens to define Truss's premiership, who succeeded Boris Johnson on Tuesday.

Truss said energy bills for an average British household would be capped at £2,500 ($2,872) a year - £1,000 less than October's planned level.

Non-domestic energy users, including businesses, charities, and public sector organisations such as schools and hospitals, will see a six-month freeze.

Analysts predict the plan, which will likely be in place at the next general election expected in 2024, could top well over £100 billion, surpassing Britain's Covid-era furlough jobs scheme.

Truss confirmed that the government will pay energy suppliers the difference in price but did not put an exact figure on how much it could cost the public purse, pending a mini-budget this month by Kwarteng.

Truss, a former Shell employee, has rejected opposition calls to impose windfall taxes on energy giants whose profits have surged on the back of higher wholesale prices.

In her campaign to succeed Johnson, she had also ruled out direct handouts to consumers, but the new scheme reverses course on that.

Paying for the freeze by increased borrowing has stoked concern on the financial markets about the prospect of worsening public finances already damaged by emergency Covid spending.

On bond markets, the UK's 10-year borrowing rate topped three percent on Tuesday for the first time since 2014, and the pound has slumped to its lowest dollar level since 1985.

READ MORE: UK hospitals see patient care threatened by rise in energy bills

Fracking moratorium

The end to the fracking moratorium comes despite Truss's Conservative party having pledged in 2019 to keep it in place, after onshore drilling for shale gas had caused seismic tremors in northern England.

She said that lifting the ban "could get gas flowing in as soon as six months".

But Kwarteng himself wrote in March that it could take up to a decade to get enough gas from fracking. At the same time, there is concern about the environmental damage of restarting the process.

Like Johnson, Truss committed to diversifying Britain's energy sources to renewables and nuclear.

But to the anger of environmentalists, the new support package offered nothing about insulating UK buildings better, to reduce Europe's highest rates of energy leakage.

"Millions of people will breathe a sigh of relief at being pulled back from the brink of fuel poverty, but it's the fossil fuel giants that will be uncorking the bubbly," Rosie Rogers of Greenpeace UK said.

And by capping prices without curbing usage, observers said the plan could trigger power blackouts this winter.

"Liz Truss needs to start levelling with the British public," a senior Conservative backbencher told AFP.

"We're ducking the hard choices, and we're staring at a 1970s energy crisis at this rate."

READ MORE: UK hospitals see patient care threatened by rise in energy bills