Full Fact finds Labour's energy plan understates cost by billions

Labour's £29 billion plan to freeze the energy price cap would not fully cover the cost of doing so, according to the fact-checking charity Full Fact and the Institute for Fiscal Studies (IFS). The plan, announced by the party leader Sir Keir Starmer on 14 August 2022, proposes that the government freeze domestic energy bills at the level set by the April 2022 price cap until the end of March 2023, instead of allowing them to rise in October 2022 and January 2023¹. On 18 August, Labour called for Parliament to be recalled in order to freeze energy bills¹.

Labour's announcement said: "Stopping energy bills from rising is a fully-funded measure, with a total cost of £29bn"¹. The party's policy document sets out costs by customer type, reaching a total of £28.9 billion¹.

Full Fact's analysis suggests Labour combined the expected extra costs for direct debit customers to reach £977 over the six months from October to March, although the party has not confirmed this¹. The document estimates there are 15 million direct debit customers in Great Britain affected by the cap¹.

The problem identified is seasonal consumption. According to Ofgem estimates cited by Full Fact, a typical household uses around 2,900kWh of electricity and around 12,000kWh of gas a year, and around 56% of that electricity and 76% of that gas is used between October and March¹. Labour's costings do not allow for this, Full Fact says, providing money for half a year's rise in prices at a time when people buy more than half of the year's energy¹.

Full Fact estimates that for direct debit customers alone, the additional cost of winter consumption would add about another £5 billion to the plan, or roughly £340 per household¹. The IFS, which analysed the figures after discussion with Full Fact, estimated separately that the total cost across all customers would be around £8 billion higher¹.

The IFS added that the roughly £8bn of costs the plan does not currently cover would either need to be paid for by the government, energy suppliers or households¹. Labour told Full Fact it agreed energy consumption is higher in winter but said its figures account for the expenditure of different types of customer, and that direct debit and standard credit bills are designed to be the same each month based on the previous year's consumption¹. Full Fact said this is true, but that all energy consumed during that period would still need to be paid for, even if some costs were paid later¹.

Why it matters for households

Under the forecasts in Labour's own document, the annual cost for a typical household paying for gas and electricity by direct debit was expected to rise from £1,971 under the April price cap to £3,582 in October and then £4,266 in January 2023¹. On that basis, direct debit customers would expect to pay on average £134 more per month from October to December and £191 more per month from January to March, compared with their current bill¹.

Full Fact's conclusion is that £29 billion would pay for most of the extra cost of people's energy bills this winter if the price cap rose according to Labour's forecasts, but that households would still pay more for energy used this winter because of the rising price cap, unless the government provided roughly £8 billion more funding or required energy companies to absorb the cost, which Labour has not proposed¹. Labour's original statement said the plan "would save the typical family £1,000", but according to the forecasts in its document the eventual cost to the typical family over the winter would rise by significantly more than £1,000¹.

What happens next

Ofgem was due to announce the October 2022 price cap on 26 August 2022, Full Fact noted, and that cap and the January cap to follow may not match Labour's forecasts, which would change the actual costs of the plan¹. Full Fact said it contacted Labour to request clarification of the claim after publication and that Labour did not respond¹.