Labour’s plan to freeze the energy price cap would end up costing almost the same as the Covid furlough scheme, a leading think-tank has warned.
The Institute for Fiscal Studies (IFS) predicted the final bill from Sir Keir Starmer’s pledge to keep bills down would likely hit taxpayers for around £60 billion.
On Monday, the Labour leader unveiled proposals to suspend October’s rise in electricity and gas prices, fixing them at a maximum of £1,971 for the following six months.
The move would shield households from the predicted increase to £3,600 this autumn, with the Government picking up the tab on behalf of energy companies.
Labour has said the scheme would cost £29 billion and that the money would be raised largely from a beefed-up windfall tax on oil and gas giants.
But when grilled on the plan, Sir Keir admitted that it could be extended beyond the initial six months if utilities prices remained high into spring 2023.
Paul Johnson, director of the IFS, said that the freeze would likely need to stay in place for at least a year to see families through the worst of the crisis.
“You are looking at the cost of furlough if you remember that from Covid a couple of years ago, so that is a very expensive scheme,” he told BBC Radio 4.
The final price tag for the pandemic support, which helped cover the wages of 11.7 million employees for 18 months, came to approximately £70 billion.
Labour said it would raise £8 billion by closing a “loophole” in the windfall tax that gives energy firms a 90 per cent discount if they reinvest profits in the UK.
A further £7.2 billion would be found because reduced interest rates as a result of lower inflation would bring down the cost of servicing the national debt.
The remaining £14 billion would come from cancelling the £400 energy rebate each household is due to receive this winter.
Sir Keir said that his "very strong, robust, costed plan" would help the "millions of people already struggling with their bills” before the price cap rises further.
He added that the Prime Minister, who he described as a “lame duck”, and the two Tory leadership candidates who are “fighting each other”, had failed to act.
The Labour leader said his proposal would see inflation peak at nine per cent this year, rather than the 13 per cent forecast by the Bank of England.
But experts cast doubt on whether it would tackle rising prices in the longer term, with Mr Johnson saying it was "not a real saving in the long run".
A source close to Rishi Sunak, the former chancellor, said the scheme would merely defer the pain for families and create a “huge cliff edge on April 1”.
The proposals are more substantial than any put forward by Liz Truss or Mr Sunak and will pile pressure on both to set out their own rescue packages.
Allies of the Foreign Secretary insist she will not announce more support, which would be targeted at the poorest, until the leadership contest is over.
Sir Keir told BBC Breakfast: “This plan is a fully costed plan for the six months taking us through the autumn and into the spring of next year. Beyond that we will have to assess the situation, of course we will, according to the circumstances as they then are.
“But the question I think that every political leader needs to answer at the moment is, in relation to that massive hike, from a cap of £2,000 to £3,500 and then up again to £4,200 in January, which is going to make it a really difficult winter for millions of people, what are you going to do about it? And that is the question we are answering today.
“I accept that in the medium and long-term there have got to be other measures, which is why we have argued for some time that in addition to this package we need to insulate millions of homes that are leaking heat and energy all of the time. We said that a year ago now, but the Government has done nothing about it.”
Sir Keir, who has faced accusations he was too slow to respond to the cost of living crisis, also had to defend the scheme from Left-wing critics.
His plan was attacked by union barons and socialist backbenchers, who are calling for the renationalisation of energy, for not going far enough.
Sharon Graham, the boss of Unite, Britain’s biggest union, branded it “a piecemeal approach” that “won’t work” and attacked the record profits of suppliers.
“These figures prove that the British economy does not work for workers and their families. Britain’s real crisis isn’t rising prices – it’s an epidemic of unfettered profiteering,” she said.
Jeremy Corbyn, the former Labour leader, added: “We need an immediate wealth tax with our energy, water, rail and mail in public hands.
“These policies are popular and would bring down bills for the millions being forced into poverty by the cost of living crisis.”
Sir Keir faced criticism last week for being absent from the cost of living debate as he was away on holiday.
However, he defended taking a break on Monday, saying he was “not going to apologise for going on holiday with my wife and kids”.
'I'm not going to apologise for going on holiday with my wife and kids'
On #BBCBreakfast Keir Starmer hits back at critics about his summer break as he unveils Labour's plan to freeze gas and electricity prices in the Autumnhttps://t.co/0baY7vTXm8 pic.twitter.com/vWUsKT4f67
— BBC Breakfast (@BBCBreakfast) August 15, 2022
He added: “I think it was the beginning of July that I said to my team, right, I want a fully costed, comprehensive plan and I want to see whether it is possible for us to freeze energy prices, but I need a fully costed plan.
“We have been working on that for six or seven weeks, so that is the first part of my answer.
“The second part of my answer is this. I have got a very important job as leader of the Labour Party, leader of the opposition, but I’ve also got another job that’s really important – and that is I’m a dad, and I’m not going to apologise for going on holiday with my wife and kids.
“It is the first time we have had a real holiday for about three years, so I have been working on this for the best part of two months, including actually when I was on holiday, so this work started a long time ago.”