UK to plan by $115 billion-plus to cut energy bills
UK’s new prime minister Liz Truss will cap mounting consumer power bills on Thursday and promote new sources of energy in an expected 100 billion pounds ($115 billion)-plus package. It also aimed to limit the economic crisis due to the war in Ukraine.
Britain is facing a lengthy recession sparked by a near quadrupling of household energy bills. Truss said she will take immediate procedures to protect consumers and businesses.
“This is the moment to be bold. We are facing a global energy crisis, and there are no cost-free options,” she said to parliament.
“We are supporting this country through this winter and next, and tackling the root causes of high prices so we are never in the same position again.”
She stated supply would also be increased, with a moratorium on fracking dropped and new oil and gas exploration licences issued for the North Sea.
“Energy policy over the past decade has not focused enough on securing supply,” Truss added.
She pointed that average household energy bills would be held at around 2,500 pounds a year for two years. This will stave off the expected 80 percent leap that was due in October and that threatened the finances of millions of households and firms.
Businesses will also be provided support, with details to come at a later date.
As gas prices remaining highly unsteady, the government did not put a price on the combined package, but it is expected to run into the tens of billions of pounds and will be funded by government borrowing.
Economists believe that this plan is likely to add more than 100 billion pounds to Britain’s debt pile. Whereas, Deutsche Bank has valued that the energy price offset plus tax cuts that Truss has also promised could together cost 179 billion pounds.
That would be around half the amount that Britain spent on the COVID-19 pandemic.
Notwithstanding, the Treasury and Bank of England will also tackle extraordinary liquidity requirements faced by energy firms that Truss said would be worth 40 billion pounds.
The plan’s scale by a leader who had excluded handouts during her campaign to succeed Boris Johnson has rattled financial markets. Its total cost will be provided later this month by new finance minister Kwasi Kwarteng.
The pound declined against the dollar on Wednesday to levels last hit in 1985.
Moreover, the sterling increased by around half a cent against both the dollar and euro as Truss spoke, while Britain’s government bond market, which had fallen heavily in the weeks leading up to Thursday’s announcement, was steady.
“The scale of the fiscal intervention announced today is huge, but so is the size of the problem facing UK households and businesses,” a strategist at J.P. Morgan Asset Management Hugh Gimber said.
European energy prices begin to rise as the world emerged from COVID-19 lockdowns and then surged in February following Russia’s war.
Average prices for British households, which are set under a cap, climbed by 54 percent in April to 1,971 pounds and were due to leap 80 percent to 3,549 pounds a year in October.
The government expects the package to hold back inflation by up to 5 percentage points. Consumer price inflation in Britain climbed to 10.1 percent in July, the highest since February 1982, and is forecast to rise to 13 percent in October.
While the new cap will ease the blow for millions of households it still poses a threat to those on limited incomes.
More than four in 10 adults already found it very or somewhat difficult to afford energy bills, according to a survey of an Office for National Statistics published in September.
Charities and consumer groups delighted by the package as providing immediate support while businesses said they needed more details.
In past, UK was a net exporter of energy from the late 1980s to 2004 following the development of North Sea oil and gas fields, but production steadily decreased from a peak in 1999.
Britain is now a net importer of all main fuel types with 38 percent of the energy it used in 2021 imported, government data showed.
($1 = 0.8702 pounds)