FREEZING the energy price cap will benefit "better-off people who use more energy", the Institute for Fiscal Studies has warned. 

Paul Johnson, the director of the think tank, described the measure, likely to be announced by the government tomorrow, as “very poorly targeted.”

However, he added that given the cost of living crisis, it may be “inevitable.”

Details of the new scheme to shield households from the expected eyewatering hikes in the energy price cap were being discussed in Liz Truss’s first Cabinet this morning.

Currently, the cap means a typical bill is can be no more than £1,971 a year. However, it will rise to £3,549 in October. 

Some analysts have suggested it could breach £5,000 by next year. 

It is thought the new Prime Minister plans on capping bills at around £2,500 for around 18 months. 

The government would borrow around £100bn to pay energy firms the difference between the artificial cap and the cost price.

Mr Johnson told BBC’s Today programme: “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 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 net year then we’re going to run out.

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

Mr Johnson also warned that while the government may be able to borrow £100bn, they could soon be forced to ask for more.

“We can afford to borrow that amount,” he added. “We’re still managing to borrow relatively straightforward on the international markets.”

“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.”

The Institute for Public Policy Research (IPPR) said a price cap freeze would “save millions [of people] from debt and also fight inflation”.

Luke Murphy, associate director for climate and energy at IPPR, said: “These proposals would prevent soaring energy bills from pushing millions into debt and destitution, and hold down ever rising inflation which is a risk to the UK’s economic stability.

“This is the scale of intervention we need to see from the government, as well as stronger support for lowest income households.”

The Legatum Institute said more needed to be done.

Lady Stroud, the Tory peer who heads the think tank, said that the free would still leave 1.3m people below the poverty line.

She said: “It is good to see that Liz Truss is taking this seriously and looking at energy price freezes. This will shield nearly a million and a half from poverty this winter. But if Liz Truss wants to stabilise poverty at pre-pandemic levels, she will need to go further and introduce a 10% uprating of universal credit as existing inflation will still hit the poorest hardest.”

Meanwhile, speaking to broadcasters this morning, the new deputy prime minister, said the scheme was proof of the seriousness of the Prime Minister. 

Asked about the funding for the scheme, Thérèse Coffey told Sky News: “Ultimately, we receive money through taxation from people and businesses and then redistribute that accordingly to the priorities set out in our manifesto and the needs of the country. So more will be said about that, aspects of that during this week”.

She added people “will just have to wait for the detail of that”.

Ms Coffey said the new Cabinet “will continue to make sure that we do strain every sinew, put everything that we can in order to get our economy growing again”.

The deputy said it was a sign that Ms Truss is a “serious person” who recognised “we need to hit the ground running”.