Keith Anderson, chief executive of Scottish Power — one of the “Big Six” energy suppliers — met business secretary Kwasi Kwarteng last week and proposed capping household energy bills at around £2,000 a year, according to people familiar with the matter. the conversations. Liz Truss, the front-runner for the Tory leadership, has acknowledged that new support may be needed for households, with bill growth expected to accelerate, but has maintained her distaste for “handouts”. But the government has grown increasingly concerned about the scale of the energy shock in recent weeks as gas prices have risen sharply. Philippe Commaret, chief customer officer at energy supplier EDF, warned on Tuesday that the UK was facing a “disastrous winter”, telling the BBC that half of all households could fall into fuel poverty without intervention. Under Anderson’s proposal, household bills would be frozen for two years near the current cap of £1,971, which is already close to double the typical bill 18 months ago. Households face another jump in the ‘cap’ on their energy bills on Friday, when energy regulator Ofgem is set to announce a new cap, which analysts expect to exceed £3,000. Banks and advisers predict the cap will be lifted above £5,000 by April. Under Scottish Power’s proposal, suppliers would cover the gap between the cap and the wholesale price of gas and electricity by borrowing from a “deficit fund”, to be arranged by the government through commercial banks. The cost will be gradually repaid by the public either through government borrowing funded by general taxation, spread over bills over the next 10-15 years, or spread between a combination of the two. People familiar with the discussions said the “mood music” in the government had changed in recent weeks as gas prices have risen, with Russia cutting supplies to Europe in retaliation for sanctions related to its invasion of Ukraine. Anderson first introduced the plan in the spring and got a sympathetic hearing from Kwarteng, according to allies of the business secretary. Rishi Sunak, then chancellor, set up a £15 billion fund including one-off payments of £400 to every household in the country. However, Kwarteng is now in line to become Chancellor of the Exchequer, with his close ally Truss, the foreign secretary, ahead of Sunak in the Tory leadership race polls. The business secretary discussed the plan with Anderson in a call on Wednesday last week, but made it clear that no decision would be made until the Conservative party chooses a new leader to replace Boris Johnson on September 5, people briefed on the talks said. conversations. The plan will cost more than the coronavirus leave program that paid millions in wages during the lockdown phases of the pandemic. It cost £69 billion between March 2020 and October 2021. Industry executives involved in the talks said the final cost of the proposal had not been determined. One option would see the government aim to support just the 5 million households in receipt of universal credit payments rather than all 28 million households in the UK, although there are concerns that the scale of the energy bill rises could also overwhelm many households with higher incomes. The cost of the plan could also rise if wholesale energy prices continue to rise, potentially leaving the government with a large uncapped liability.

People familiar with the talks said the proposal could help reduce inflation in the wider economy, although many small businesses, which are not covered by the price cap, may need additional support. Keir Starmer, leader of the opposition Labor Party, said as prime minister he would cap prices at their current level for six months at a cost of around £30 billion. A government official said the Anderson proposal showed the industry believed the crisis could continue for two years. “It shows not only the magnitude of the problem but also the length of time it is likely to last. . . it shows how long the industry thinks prices will stay high,” he said.