UK leadership race turns to energy

Energy policy is heating up in the UK's prime ministerial race, as ideas sketched out by Conservative party contenders Rishi Sunak and Liz Truss aim to limit the cost of living fallout from soaring wholesale gas prices.

Natural gas will account for around 90% of astounding energy price rises set to hit UK households and businesses this winter, according to UK media. The regulatory cap, a mechanism by national regulator OFGEM that limits how much utilities can charge to consumers, would reach as much as £4,266 ($5,130)/yr by the start of next year, if estimates from industry analyst Cornwall Insight are to be believed. That is up from £1,400 for the average energy bill in October 2021.

To win election to No 10, Truss and Sunak must play to win votes from core Conservative party supporters, who generally favour free market principles and limited state intervention. But they must also head off the challenge from the leader of the Labour opposition, Keir Starmer, who says a government under Labour would freeze the energy bill cap, at £1,971/yr.

Opinion polls have Truss ahead with Conservative party members following a series of hustings across the country. A survey for party blog ConservativeHome pegged Truss's lead at 32 percentage points on August 17, suggesting Sunak faces an uphill battle over the next two-and-a-half weeks.

In Perth, both contenders portrayed Starmer's policy proposal as unachievable. Truss believes throwing "money at the problem" would only cause further instability in the UK fuel system, while avoiding "root causes" regarding UK energy security that have led to the price rises. Having served in the outgoing Boris Johnson government, both Truss and Sunak will be expected to broadly support the new energy security strategy, published April, which promises more oil and gas exploration in the North Sea.

Truss has explicitly said a focus on long-run energy investment would be key under her administration, including support for reopening England's shale fracking industry and building new nuclear power plants. Sunak, by contrast, is understood to have contested the price tag of backing 30 GW of nuclear power capacity by 2050 under Johnson's strategy, holding back its publication by more than a month, according to The Guardian.

Truss has promised to curb inflation by cutting taxes – a staple of Conservative policy appeals – which she says would limit inflation indirectly. Sunak is pitching slightly more expansive interventions, having previously introduced a £5bn windfall tax on the oil and gas industry as chancellor, through support targeted at the poorest households and pensioners. He too has criticised Starmer's energy cap pledge, saying he does not believe it is "the right approach".

Somewhat surprisingly for a UK chancellor who prioritised balancing the books over tax cuts, Sunak has also pledged up to £10bn to help customers perplexed by rising energy bills, in a support package that would target up to 16mn people. Around half of that could come through a cut to VAT, removing the 5% VAT charged on energy bills for 12 months, with the remainder focused on supporting the poorest households. Truss has also said she will consider suspending VAT on energy payments.

Sunak also says "limited and temporary one-off" borrowing could be used as a last resort if energy inflation spirals out of control. Direct payments would be used to protect pensioners and low-income households from financial distress similar to the "cost-of-living payments", of around £650, on offer from the current Tory administration.