IFS director: Expected energy support package ‘very poorly targeted’

A leading economist has expressed concern that Liz Truss’s plans to freeze energy bills will benefit affluent people more than the less well-off.

Paul Johnson, director of the Institute of Fiscal Studies, described the support package, expected on Thursday, as “very poorly targeted”.

He told BBC’s Today programme on Wednesday morning:

“If this is a straightforward bill freeze then the majority of the money will go to better-off people who use more energy. So this is very poorly targeted. Not only is it poorly targeted, but it also means that we don’t see the full price signal, that actually across the world people need to see.

“The reason that gas prices are so high is because there’s less gas around and if the world doesn’t use more gas over the next year then we’re going to run out.

“Finding a way of targeting it to the many, many millions who really need it, without giving it to the many, many millions who don’t, appears to be something that has stumped the Treasury and the government for finding a mechanism of achieving that.”

Johnson also said that the UK government can afford to borrow £100bn to tackle the cost of living crisis, although the amount may well rise to an “awful lot more”.

“We can afford to borrow that amount. We’re still managing to borrow relatively straightforwardly on the international markets, although the interest rate we’re having to pay is rising quite fast: it’s gone above 3% for the first time in more than a decade and that’s still relatively low in historical terms.

“The big question here is: ‘Is it going to be £100bn? What is the exit strategy from supporting bills?’ My guess is it might end up being an awful lot more than that unless we react quite quickly to make it a better system.

“Is it the best way of spending the money? I rather suspect it is an inevitable way in the short run if everybody who needs help is to get that help, but I do think it’s incredibly important that the government thinks through and gets to a better or more targeted way of supporting us as we get through to next winter. Otherwise, we’re going to be on the hook, potentially, for an awful lot more money, for an awful lot longer.”