The Energy Price Guarantee may cost much less than is feared

Critics of ‘Trussonomics’ – and there are many – have been quick to claim that the new energy price plan puts its economic credibility at risk. Indeed, early estimates suggested that the ‘Energy Price Guarantee’ could cost the taxpayer £150 billion or more over two years, making it the most expensive economic policy in history. More than the furlough scheme, more than even the bank bailouts. Fortunately, the bill looks like it will be a lot smaller and sceptics are set to be proved wrong.

The Prime Minister proposes to cap the unit price of energy for households for two years, starting next month, with the government compensating suppliers for any additional costs. Similar support has been offered to businesses and other energy users (such as schools) for an initial period of six months.

Let’s be clear: it’s a massive state intervention in the markets which will subsidise the energy bills of every consumer regardless of need. An oligarch heating the swimming pool in his London mansion will benefit from the capped cost just as much as the pensioner in Blackpool trying to survive winter. Any half-decent economist could have come up with a better-targeted, more efficient and potentially cheaper ‘Plan A’.

Nonetheless, the chosen ‘Plan B’ is at least simple. Easy to communicate. It should be far more effective than a patchwork of smaller measures in lifting the huge cloud of uncertainty hanging over households and businesses. It will also not have to be continually revised and extended (as the furlough scheme was) if energy prices remain high.

In fact, it’s not so bad in terms of its distributional impact either. Oligarchs aside, the biggest benefit will go to households that use the most energy – so people in colder rural areas, or the north. Lower-income households should see the biggest gains as a percentage of their budgets.