Liz Truss’s energy bill freeze 'risks gas rationing and shortages’

Liz Truss's plans to freeze energy bills could lead to energy rationing and shortages this winter, a top economist has warned.

The new prime minister is expected to freeze the energy price cap at around £2,500 in her first major intervention as leader of the United Kingdom, The Times reports.

The price cap is currently due to increase by 80% on 1 October, taking the average household's annual bill to £3,549.

Paul Johnson, director at the Institute for Fiscal Studies (IFS), has said it is a "terrible policy" that will risk gas rationing - but conceded it could be "unavoidable".

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Ofgem confirmed the increase to the energy price cap (Yahoo News UK/Flourish)
Ofgem confirmed the increase to the energy price cap (Yahoo News UK/Flourish)

He said the policy increases the risk of rationing because it does not provide an incentive for households to cut back their usage, despite a lack of supply pushing prices up.

This week Vladimir Putin cut off gas supplies to Europe via the key Nord Stream 1 pipeline in retaliation to Western sanctions on Moscow.

"I think [Truss's policy] potentially has the consequence of leading to the overall cost of gas going up even further because the demand isn't going," Johnson told TalkTV on Tuesday.

"It risks shortages and rationing, in the end."

On Wednesday, when asked if she would rule out energy rationing at the last of the Tory party leadership hustings Truss said: "I do rule that out. Yes."

Her approach puts the UK at odds with the rest of Europe, where leaders are encouraging citizens to reduce their energy consumption ahead of winter.

On Monday French president Emmanuel Macron urged his citizens to cut back on air conditioning usage warning energy cuts could happen "as a last resort".

Truss' support package could cost the Treasury around £90bn.

Read more: Most Brits don’t trust Liz Truss to deal with the cost-of-living crisis, poll finds

The plans come after Truss refused to provide details of an energy package over the summer - instead pledging cuts to National Insurance contributions and suspensions of green levies.

Experts have warned of "catastrophic" levels of fuel poverty without financial interventions, with managing director at EDF Philippe Commaret in August saying half of households could fall into fuel poverty.

UK inflation is at its highest level for decades. (ONS CPI)

“We face, despite the support that the government has already announced, a dramatic and catastrophic winter for our customers,” Commaret told the BBC in August.

"In fact, in January half of the UK households might be in fuel poverty.”

Money Saving Expert Martin Lewis has repeatedly begged the new prime minister to prevent a "catastrophe" this winter when energy bills increase by 80%.

“I hope and I pray whomever our new prime minister is, they have the will to do something, said Lewis on Wednesday.

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"Because, if they don’t, people will die this winter due to these energy price hikes.”

New polling shows the majority of Brits (57%) don't trust Truss to deal with the-cost-of-living crisis - with just 2% saying they had a lot of confidence and 17% saying they had some confidence.

Polling from the end of August also revealed that 45% of voters think Truss is incompetent, with 40% believing she is dishonest.

Watch: Cost of living: Truss putting finishing touches on plan to freeze energy prices and pay back difference over decades