The UK’s newly elected Prime Minister Liz Truss is expected to announce a billion-pound stimulus package to help those with soaring energy prices.
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LONDON – New UK Prime Minister Liz Truss will announce a package worth tens of billions of pounds to help people pay their energy bills on Thursday, but there are concerns about how it will be funded.
The policy announcement is expected to freeze energy prices at current levels or at £2,500 ($2,870). As it stands, the cap that comes into effect next month will increase the average energy bill from £1,971 to £3,549 a year.
Truss said she would “deal with the energy crisis caused by Putin’s war” in her first speech as prime minister on Tuesday night. “I will take action this week to address our energy bills and secure our future energy supply,” she said.
The the number of people poor in fuel According to the campaign group Coalition to End Poverty in the UK, in the UK, where it has been determined that it is not possible to adequately heat a home, it will affect 12 million households (42%) over the winter. this if financial assistance is not offered, according to campaign group Fuel Alliance for Poverty Reduction.
Support worth 180 billion pounds?
The exact details of the package are yet to be revealed. Initial projections suggested it could be worth around £100 billion, but the latest estimates from Deutsche Bank say it could be closer to £200 billion.
The bank raised its expectations as reports suggested the energy bill freeze would be around £2,500, “an amount significantly lower” than the bank had anticipated, it said in a statement. a research report on Wednesday.
Reports also suggest a £40 billion package will be put in place to support businesses with their energy costs, according to the bank, bringing the total number of support measures expected to £180 billion. Older brother.
It was initially anticipated that support would be for households only.
According to Deutsche Bank, this is nearly half of the cost of financial support during the Covid-19 pandemic and just over 8% of gross domestic product. It estimates the freeze will take place from October.
‘The final bill will fall into the hands of the taxpayer’
The setup package announced by Truss may not be too different from plan proposed by the opposition Labor Party on August 14.
The main difference is that Labor has proposed funding the move through a wind tax on oil and gas companies – something the new prime minister has ruled out.
Truss told the House of Representatives during her first session of questioning with lawmakers on Wednesday: “I am against favorable taxation.
She said: “I believe it is wrong for companies to stop investing in the UK when we need to grow the economy.
Growing the UK economy through “tax cuts and reforms” was one of three key tasks set out by the new prime minister in his first speech on Tuesday night.
Others are tackling the energy crisis and improving Britain’s National Health Service.
According to Christopher Dembik, head of macro analysis at Saxo Bank, the new energy package will likely be financed through additional government borrowing, but the consequences of the financial support could linger. for many decades to come.
“She will have to go down a single path: open the door to a big stimulus and, once the crisis is resolved, raise taxes,” Dembik said.
“That is great news in the short term, although the bill will eventually fall into the hands of taxpayers and could take generations to pay off,” he told CNBC.
‘It won’t help us in the coming winters’
According to economist Jeevun Sandher, an energy stimulus package would be a short-term solution to a long-term problem for people in the UK.
“The plan as currently stated would have prevented the coming disaster but the crisis persisted,” he said, referring to the cost-of-living crisis that has affected many families and businesses in the UK.
This freezing of energy prices could prevent disaster this winter, but it won’t help us in the coming winters, he said.
Salomon Fiedler, economist at investment bank Berenberg, said the gas sector could also feel the strong impact of the stimulus.
“If incumbents freeze prices now but keep them above costs in the future, they could be outperformed by new entrants in the future without having to be withdrawn. existing losses and thus be able to cut them,” Fiedler said.
“Another problem is that a general freeze in energy prices would remove incentives for households to reduce gas consumption,” Fiedler told CNBC. “This will likely make policy very expensive and increase the scarcity of gas for non-freeze sectors even further.”
There is also speculation about the impact on the economy as a whole. While Truss’ low tax and deregulation policies may boost the economy, the benefits won’t be felt for several years, or even decades, Fiedler said.
“In the short term, additional fiscal stimulus, be it through tax cuts or accommodative measures, will exacerbate inflationary pressures (even if the reported rate of inflation will depend on details of these measures) if they are not financed by … spending cuts elsewhere,” he wrote.
Chris Curtis, head of political polling at Opinium Research, said the cost of energy bills is “certainly the most important issue for voters right now”. told CNBC.
“As a new prime minister, it’s important to make a good first impression and Liz Truss hopes that by heavily interfering with voters’ biggest priorities, it will work its way,” Curtis said. something to make a positive first impression”.
“Most voters told us that they still don’t know much about her and opinions about her are pretty weak, so it’s a really important time for her to try and reach out to her well.” the public,” he said.
‘Impossible test’ for the most vulnerable
With the warning that the coming decade of winter could be “terrible” If serious action is not taken to control gas prices, some are asking whether the upcoming package will be enough to protect the most vulnerable.
According to a study from Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, freezing prices at current levels would cause a spike in energy demand and make the situation worse.
“While anyone paying by direct debit will technically incur higher costs throughout the year, lower income earners are more likely to use a prepaid meter where they pay money for the energy they use at the time they use it,” Coles said.
“If prices freeze slightly higher, it will add to the impossible challenges facing the most vulnerable this winter,” she said.