Truss borrows billions to freeze home energy bills – but business support less clear

After days of speculation, the plan from Liz Truss to tackle soaring energy costs has been announced; consumers’ energy bills will be frozen at £2,500 for the next two years.

A secondary package of support for businesses and institutions such as schools has also been announced, but that lasts only six months and the details are sketchy.

Let’s deal with consumers first. In addition to the bill freeze, the £400 rebate already promised to domestic consumers covered by Ofgem’s price cap will continue to be paid, and £150 of green levies will be scrapped, further reducing costs.

The rebate will not be there next year, so bills will rise then unless we see an unlikely Goldilocks scenario emerging on the global markets.

As winter usage ramps up, consumers will still be paying a lot more than they were this time last year, when the annual equivalent figure for a typical family was £1,271.

However, the freeze affects unit prices, which means you’ll pay less if you use less.

Whichever way you cut it, the plan represents a vast improvement on the sort of prices predicted by some forecasters. Figures of £6,000 were being bandied around, which you can file under “disastrous”.

But how consumers will react to paying even a penny more when oil giants and other energy companies are throwing off cash and using it to buy back shares with wild abandon remains to be seen.

They may well wonder why the exorbitant cost of this package, which some forecasters say could reach £150bn or more, isn’t being better shared. Labour’s calls for a fresh windfall tax on energy giants will continue to resonate.

There is a real ideological divide between the two parties here. The argument is one that Labour can win, not least because Josephine taxpayer is going to have to pay it back in some form.

Don’t let’s kid ourselves this is a loan we’re all taking out. It’s just one which may be paid for in lost schools or hospitals or police officers down the line. Does team Truss really think it will be able to limit business support to six months if prices are still up in the stratosphere next spring?

The struggles businesses are facing was made clear by Primark, which on Thursday cited energy costs in its store estate in a nasty profit warning, along with the declining disposable income of customers and the strengthening of the US dollar, heightening the cost of the clothes it imports, most of which are made in Asia.

Primark is holding its prices against that backdrop, which it can do because it is a highly successful business and low prices are a key differentiator and part of its model. The point was underlined when Kate Beckinsale was pictured in an £8 Primark swimsuit adorned with the logo of value food chain, Greggs.

Primark is part of Associated British Foods. It has the financial firepower to cope. Smaller businesses don’t. Ditto some larger ones, big manufacturers for example. Then there are schools.

The government risks spending billions on simply delaying an insolvency and jobs crisis if it tries to hold the line. It’s doubtful that it will be able to do that if things are still looking bad six months closer to a general election with a truckload of other economic nasties biting down.

It insists some of the costs of its package will at least be defrayed through a reduced headline inflation figure, which will reduce the cost of government debt repayments. Labour’s “fully funded” freeze plan also called on this wheeze.

But that’s little comfort and there remain unanswered questions, not least how the Bank of England will respond to what is an enormous stimulus.

Trussonomics round one has headed off an immediate crisis but there are pitfalls ahead.