Newly elected British Prime Minister Liz Truss is expected to announce a multi-billion pound stimulus package to help people with higher energy prices.
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LONDON – New British Prime Minister Liz Truss is set to announce a tens of billions of pounds package to help people pay energy bills on Thursday, but there are concerns about how it will be funded.
The policy announcement is expected to freeze the energy price either at its current level or at £2,500 ($2,870). As it currently stands, the cap that comes into effect next month will raise the average energy bill from £1,971 to £3,549 a year.
In her first speech as prime minister Tuesday night, Truss said she would deal with the energy crisis caused by Putin’s war. “I will take action this week to deal with energy bills and secure future energy supplies,” she said.
The Number of people suffering from fuel poverty In Britain, which has been defined as not being able to adequately heat a home, 12 million households (42%) will reach this winter if financial support is not provided, according to the End Fuel Poverty Coalition campaign group.
180 billion pounds of support?
The exact details of the package have not yet been revealed. Initial forecasts suggested it could be around £100 billion of support, but the latest estimate from Deutsche Bank said it could be closer to £200 billion.
The bank raised its forecast as reports suggested the energy bill would be frozen at £2,500, “a much lower amount” than the bank had expected, it said in a research note on Wednesday.
Reports also indicate that a £40 billion package will be put in place to support businesses in energy costs, according to the bank, bringing the total expected support measures to £180 billion.
It was initially expected that the support would be available only to families.
According to Deutsche Bank, the figure is close to half the amount spent on providing financial support during the Covid-19 pandemic and just over 8% of GDP. It estimates the freeze will be in effect from October.
‘Bill will eventually fall on the taxpayer’
The package that will be advertised by Truss may not differ much from the package A plan proposed by the opposition Labor Party On August 14.
The main difference is that Labor has proposed financing the move through an unexpected tax on oil and gas companies – something the new prime minister has ruled out.
“I am against an unexpected tax,” Truss told the House of Commons during her first questioning session with fellow lawmakers on Wednesday.
“I think it is wrong to put companies off investing in the UK as we need to grow the economy,” she said.
Growing Britain’s economy through “tax cuts and reforms” was one of three key mandates the new prime minister outlined in her first speech on Tuesday night.
Others were tackling the energy crisis and improving Britain’s National Health Service.
The new energy package is likely to be financed by additional government borrowing, but the effects of the financial support could last for decades to come, according to Christopher Dembek, head of macro analysis at Saxo Bank.
“It will have to follow only one path: open the door to a massive stimulus package and, once the crisis is settled, raise taxes,” Dembek said.
“It’s great news in the short term, although the bill will ultimately fall to taxpayers in the long term and may take generations to pay,” he told CNBC.
Nothing will help us next winter.
The energy stimulus package would be a short-term solution to a long-term problem for people in Britain, according to economist Jevon Sander.
“The plan, as it is currently announced, will stop the next catastrophe, but the crisis still exists,” he said, referring to the cost of living crisis that is already affecting many families. business in Britain.
“This energy price freeze may stop the next catastrophe this winter, but it won’t help us next winter,” he said.
The gas sector may also feel the spillover effects of the stimulus package, said Salomon Fiedler, an economist at investment bank Berenberg.
“If incumbent utilities freeze prices now while keeping them individually above costs in the future, they may be outnumbered by future new entrants who don’t have to offset current losses and can therefore undermine them,” Fiedler said.
“Another problem is that a general energy price freeze would remove incentives to reduce household gas consumption,” Fiedler told CNBC. “This is likely to make the policy too expensive and increase gas scarcity for sectors not covered by the freeze even more.”
There is also speculation about the impact on the economy as a whole. Fiedler said that while Truss’ low-tax policies and deregulation may boost the economy, the benefits won’t be felt for several years, or even decades.
“In the short term, additional fiscal stimulus, whether through tax cuts or support measures, would exacerbate inflationary pressures (even as reported inflation rates depend on the specifics of these measures) if not financed by… spending cuts elsewhere.” he wrote.
The cost of energy bills “is definitely the most important issue for voters right now,” Chris Curtis, head of political polls at Opinium Research. He told CNBC.
“It’s important as the new prime minister to make a good first impression and Liz Truss hopes that by interfering significantly with voters’ highest priority, he will go some way to making that positive first impression,” Curtis said.
“Most voters tell us they still don’t know much about her and her opinions are very weak, so it’s really an important moment for her to try to land well with the public,” he said.
Impossible challenges for the most vulnerable
With the warnings of the next decade of winter can be “terrible” If no serious measures are taken to control gas prices, some are questioning whether the next package will be enough to protect the most vulnerable.
Freezing prices at their current level will lead to higher energy needs and exacerbate the situation, according to a research note from Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
“While anyone who pays with a direct debit will actually spread out technically higher costs throughout the year, lower-income earners are more likely to be on prepaid meters, paying for the energy they use at the time they use it,” Coles said. .
“If prices are frozen at a slightly higher level, it will compound the impossible challenges facing the most vulnerable this winter,” she said.
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