Liz Truss Announces Energy Support for Schools and Colleges: Sector Response

Liz Truss has announced an energy bills price cap of £2,500 for the typical household per year, for the next two years.

A six-month support package for businesses has also been announced, with further support for “vulnerable industries” after that period. This means that businesses will be capped at the same as households, but only for the 6 month period.

Today’s announcement will soften the coming squeeze on incomes by reducing short-term inflation by around four percentage points in January 2023 (rising to almost six percentage points for the poorest tenth of households), at the cost of potentially prolonging elevated inflation and/or higher interest rates.

The Resolution Foundation’s analysis shows that capping energy prices at £2,500 will save the typical household £1,074 on their energy bills over the next six months. This, together with the previously announced £400 energy bill rebate, covers 76 per cent of the increase in bills compared to last winter (October 2021-March 2022).

JRF estimates today’s announcement – that energy prices will be capped at £2,500 including the £400 energy bill rebate – is worth on average around £900 to a low-income family.

When combined with the Government’s other policy responses such as lump sum payments of up £650 and a £150 council tax rebate as well as the £400 energy rebate, families receive around £2,100.

But JRF’s analysis finds this isn’t enough to meet rising energy and other costs – around £2,900 in total – leaving a gap of around £800 that these families will have to find themselves.

This means millions of families still face a winter going without essentials like food or hygiene, or borrow money at increasing interest rates, just to meet the rising cost-of-living.

After April 2023, this gap will become even wider because the Government has not committed to renew the raft of support measures it unveiled earlier this year.

The Resolution Foundation found that the universal approach to capping prices does a good job of targeting those with the biggest bills – such as large families and those living in poorly insulated homes – and ensures that fewer households fall through the cracks in support. But the inclusion of large support for high-income households also means the new PM is asking future taxpayers to accept a very large, and very uncertain, bill to help today’s energy bill payers.

The Foundation notes that the new PM’s announcement, which the government exceptionally chose not to provide any costings for, could eclipse the £137 billion bailouts for banks during the financial crisis.

Support for households alone over the next six months is likely to cost around £57 billion, rising to around £120 billion over the next two years on current forecasts for wholesale gas prices. Business support, many details of which are still to be finalised, will add significantly to this.

The Government has rightly rejected calls from industry to fund the package via higher bills, but could have done more to reduce the pressure on tax and bill payers by tackling the windfalls some energy companies are seeing.

A proposal to negotiate new longer-term contracts with low carbon energy generators in order to reduce the prices they charge today risks delaying but locking-in those windfalls, rather than removing them. The significant fiscal loosening currently underway will also increase the pressure on the Bank to increase interest rates faster than they otherwise would. The Foundation notes that an extra 1 per cent on interest rates would add around £11 billion in public borrowing in the first year.

The Foundation says that as today’s support does not change the medium-term outlook for prices and pay, households are still likely to end the current parliament significantly poorer than they were at the start of it – an unwelcome and unprecedented feat in modern British history. Turning this around will require energy prices to fall and the new PM to succeed in her focus on turning around the UK’s sluggish growth rates.

Sector Response

Kevin Courtney, Joint General Secretary of the National Education Union, said: 

“The Government’s announcement that they will freeze energy prices for schools and colleges for six months will do nothing to mitigate the increases that have already happened. Many schools have already seen their energy bills triple or more. The proposal only provides six-month protection at an unmanageably high level and does not provide security for the future.

“School funding remains lower in real terms than it was in 2010. The sharp increase in school costs means that the last Prime Minister’s promise to restore school funding will not be met unless funding is increased. Schools will continue to be forced to increase class sizes, cut subject choice, and reduce additional support unless more money is committed.

“The Government must step up to protect children’s education now. Schools are striving to recover from the pandemic and the rise in the cost of energy and the chronic lack of funding will derail that work.”

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving working lives in the UK:

“It is welcome that the Government has introduced new measures that provide certainty to anxious workers and employers amidst soaring global energy prices. The £2,500 energy cap will give many working families stability for the next two years so that they can keep the heating on, but there are still big questions about whether this policy will be paid for by the taxes of working people.

“These measures alone won’t end the cost of living crisis. It is still going to be a very challenging winter for those in low paid, insecure jobs whose wages are not keeping up with rising prices and will still struggle to make ends meet. In the longer-term, it is important that the new Government ensures that social security is more responsive to the true cost of living as prices rise.” 

Geoff Barton, General Secretary of the Association of School and College Leaders, said:

“We are pleased that the government is extending the energy price guarantee to schools and colleges. The financial pressure they face as a result of soaring energy costs is eye-watering and unsustainable, and this intervention is desperately needed. However, we are concerned that the Prime Minister’s announcement seems to indicate that this guarantee will last for only six months and we will be seeking clarification about what happens beyond then, as well as more detail about exactly how the guarantee will work. There is absolutely no way that schools and colleges can bear unrestrained energy cost increases at any point without this impacting on educational provision. We are also pleased that there is protection for households which we hope will reduce the risk of an increase in the very high rate of child poverty which already exists in the UK. From an educational perspective, children who are cold and hungry are not in a fit state to learn. However, we need to understand the extent to which the guarantee will protect the most vulnerable families.

“It is also important to understand that rising energy costs are only one element of the immense pressure on school and college budgets. They are also facing the cost of national pay awards for their staff – which are fully deserved, and indeed inadequate in the context of inflation, but for which there is no extra funding from the government to pay these awards. The government believes this is ‘broadly affordable’ on the basis of the money invested into education in last year’s spending review but it certainly does not feel like that in many schools and colleges, and comes against the background of a decade-long funding squeeze. It is an atrocious record from a government that has simply not prioritised education and the future of children and young people as it should have done, and it must remedy this dire situation urgently.”

Paul Whiteman, general secretary of school leaders’ union NAHT, said:

“Spiralling energy costs have already contributed to a funding crisis in schools. Today’s announcement is certainly better than no action at all, but it doesn’t solve the crisis.

“Even with this cap many schools will still find they are left facing extremely high bills this autumn and winter. While this may help to stop things getting worse, it won’t necessarily make things better either.

“Until schools have been able to look in detail at how this affects them individually, we won’t know for sure how effective a move this will be. The time-limited nature of the cap will be a worry too – we hope that schools are one of the front-line services that continue to be protected going forward.

“Energy bills are only one of the massive cost pressures facing schools this term. The government’s decision not to fund teachers’ pay this year is an enormous hit to school finances, and many other costs are rising due to inflation too. We are clearly a very long way from being out of the woods when it comes to current funding crisis.”

Torsten Bell, Chief Executive of the Resolution Foundation, said:

“Soaring gas prices were set to leave millions of families facing a living standards catastrophe this winter, with energy bills on course to hit £550 in January alone.

“The new Prime Minister has rightly responded with a mammoth energy support package that will cover around three-quarters of the rise in energy bills this winter.

“Households should be reassured that the winter ahead will not be as bad as feared, but policy makers need to recognise it will still be very tough indeed. The Energy Price Guarantee does a good job of targeting those households facing the highest energy bills but, because it is not well targeted at those on low and middle incomes, comes with a large price tag.

“Liz Truss is asking future taxpayers to pick up a large and very uncertain bill on behalf of today’s energy bill payers, but declined to set out the cost of this huge package. It could end up surpassing the bank bailouts at the height of the financial crisis, with new support for households alone on course to total around £120 billion.  It goes without saying this can’t be the permanent answer to higher energy bills.

“Overall this is a huge package of support announced by the new Prime Minister within days of taking office. A decision to borrow very big indeed will significantly soften, but far from end, the immediate squeeze on family finances ahead of us.”

JRF chief analyst Peter Matejic said:

“The Government’s energy price freeze headed off a stratospheric predicted price increase from October but struggling households remain extremely worried about how they are supposed to fill this gap.

“This shows Liz Truss’s job isn’t done. When she unveils further plans as part of her fiscal statement she must remember the many low income families suffering in hardship. They deserve to know what additional support the Government will pledge as cost-of-living pressures continue. “

Gavin Rice, Policy Director, The Centre for Social Justice:

“The Centre for Social Justice welcomes the Prime Minister’s intervention today to control spiralling energy costs. In taking the decision to provide direct financial support to cap people’s energy bills, the action taken today recognises the scale of need. 

“While a more targeted and cost-effective approach may have been preferable, we recognise the immense pressure the Government is under to act – and to act quickly – to provide reassurance to households and businesses across the country.

“Even with the measures laid out before Parliament today, the poorest households will still struggle with the rising cost of living over the coming months. The CSJ urges the Chancellor in his anticipated September fiscal statement to use Universal Credit, which helped millions so efficiently during the pandemic, to target support to those who need it most. An early uprating would ensure the incomes of those with the very least are protected from the worst of inflation, while restoring work allowances would deliver an effective tax cut for Britain’s poorest workers.”