Sir Keir Starmer's plans for a fully-funded energy price freeze for UK households is partly based on an "illusion", the Institute for Fiscal Studies warned last night.
The Labour leader will say today that the cap on electricity and gas prices should be frozen at its current level of £1,971 for six months from October, in order to protect households from the planned rise of up to £3,600 this autumn.
Sir Keir will claim the £29billion cost could be funded by hiking the new windfall tax on North Sea oil and gas producers to £8.1billion, diverting £14billion of planned spending by the Government and Tory leadership contenders and £7.2billion from saving on debt-interest payments from lower inflation.
But the IFS economic research institute is warning that the £7.2billion saving on interest payments on national debt was an "illusion".
Paul Johnson, director of the IFS, told the Telegraph: "It's an illusion in the sense that it will reduce interest debt payments in the short term. But, unless you maintain these kinds of subsidies permanently, it won't reduce them in the long run. Inflation will be higher later on."
Liz Truss, the front-runner in the Tory leadership race, has not ruled out further help for families, despite focusing her economic package on immediate tax cuts rather than direct payments.
Her allies on Sunday dismissed Sir Keir's plans as just a "sticking plaster".
Not a substitute
"Grabbing a headline is not a substitute for a more consistent policy," said one ministerial ally.
"Any freeze has to come to an end. Remember the freezes of the 1970s and prices jumped immediately they ended. On their own, they are temporary sticking plasters that don't solve the underlying infection."
Government sources confirmed that Chancellor Nadhim Zahawi is working on plans to cut an extra £400 from energy bills this winter that would be presented among options for the incoming prime minister.
He has asked officials to work on a multibillion-pound package which would lead to a reduction in the energy price cap from January.
The energy price cap - the maximum amount suppliers can charge for average use - is forecast to hit £3,582 in October and £4,266 in January.
Sir Keir said that, if Labour's £29billion plans were adopted, the typical family would see savings of £1,000.
He said his party "wouldn't let people pay a penny more" on their winter fuel bills.
Feeezing the price cap
He claimed freezing the price cap at the current level of £1,971 a year for the typical household would bring inflation down by 4%.
Inflation hit 9.4% in June, the highest level for more than 40 years. The Bank of England has warned it could peak at more than 13% in the next year.
If it was in power, Labour would help pay for its plans through significantly increasing tax revenues from oil and gas producers.
In May, the UK Government announced a windfall tax on North Sea firms which it expects would raise about £5billion in its first year.
The BBC reports that Sir Keir also said his party would also reduce energy demand and lower bills in the longer term by insulating 19million homes over the next decade.
The plans also include a pledge to secure the country's energy supply to protect against future shocks, including by doubling onshore and offshore wind capacity and increasing production of solar, tidal, hydrogen and nuclear power.
Conservative leadership candidates Rishi Sunak and Ms Truss are both opposed to extending the windfall tax on oil and gas producers, with Ms Truss saying it sends the wrong message to international investors.
Cost-of-living talks
Meanwhile, Prime Minister Boris Johnson has agreed to talks between the UK and devolved governments over the cost-of-living crisis.
It comes after Scotland's First Minister Nicola Sturgeon requested an emergency meeting.
No date for the discussions has been set.