Newly elected UK Prime Minister Liz Truss is expected to announce a multi-billion pound stimulus package to help people hit by rising energy prices.
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LONDON – England’s new prime minister Liz Truss is set to announce a package worth tens of billions of pounds to help people pay their energy bills on Thursday, but there are concerns over how it will be funded.
The policy announcement is expected to freeze energy prices at their current level, or £2,500 ($2,870). The current cap, which comes into effect next month, will increase the average energy bill from £1,971 to £3,549 a year.
In his first speech as prime minister on Tuesday evening, Truss said he would “deal with the energy crisis caused by Putin’s war”. “This week I will take action to tackle energy bills and secure future energy supplies,” he said.
The announcement comes to more than 170,000 people in the UK They plan to cancel their energy bills In opposition to Increased energy price cap.
The Number of people living in fuel poverty In Britain, which is defined as not being able to heat a home adequately, unless financial support is provided, it will hit 12 million households (42%) this winter, according to campaign group End Fuel Poverty Coalition.
£180 billion worth of support?
Exact details of the package are yet to be revealed. Early estimates suggested it could be worth around £100 billion in support, but recent estimates from Deutsche Bank said it could be closer to £200 billion.
The bank raised its expectations as reports suggested the energy bill freeze would be around £2,500, a “significantly lower amount” than the bank had expected, it said in a research note on Wednesday.
According to the bank, the £40 billion package will be set to support businesses with their energy costs, bringing the total of expected support measures to £180 billion, according to reports.
It was originally expected that only houses would get support.
The figure is almost half of what was spent on financial aid during the Covid-19 pandemic and just 8% of GDP, according to Deutsche Bank. The freeze is expected to come into effect from October.
The bill ultimately falls on taxpayers
The package declared by the truss is not very different from a A plan proposed by the opposition Labor Party On August 14.
The main difference is that Labor had proposed funding the move through a windfall tax on oil and gas companies – something the new prime minister has rejected.
“I am against a flat tax,” Truss said in the House of Commons during her first question session with fellow lawmakers on Wednesday.
“I believe it’s the wrong thing to put companies off investing in the UK, as we need to grow the economy,” he said.
Boosting the UK economy through “tax cuts and reforms” was one of three key mandates set out by the new prime minister in her maiden speech on Tuesday evening.
Others tackled the energy crisis and improved Britain’s National Health Service.
According to Christopher Dembig, head of macro analysis at Saxo Bank, the new energy package will be financed by additional government debt, but the repercussions of the financial support could be felt for decades.
“She has only one path to follow: open the door to a massive stimulus package and, once the crisis is resolved, increase taxation,” Dembig said.
“It’s great news in the short term, but in the long term the bill will fall on taxpayers and may cost generations,” he told CNBC.
‘It won’t help us in the coming winters’
According to economist Jeevan Chander, an energy stimulus package would be a short-term solution to a long-term problem for people in Britain.
“The current proposed plan will prevent disaster, but the crisis is still there,” he said, referring to the cost-of-living crisis already affecting many families. Businesses in Britain.
“This energy price freeze may stop the disaster this winter, but it won’t help us in the winters to come,” he said.
The gas sector may also feel the knock-on effects of the stimulus package, said Solomon Fiedler, economist at Berenberg Investment Bank.
“Even if incumbent utility companies freeze prices now, if they keep them higher than individual costs in the future, they won’t have to recoup current losses from new entrants in the future, and thus reduce them,” Fiedler said.
“Another problem is that a general energy price freeze would remove incentives for households to reduce gas consumption,” Fiedler told CNBC. “This will make the policy more expensive and further increase gas shortages for sectors not covered by the freeze.”
There are also speculations about the impact on the overall economy. While Truss’ low-tax and deregulation policies will boost the economy, the benefits won’t be felt for years or even decades, Fiedler said.
“In the short run, additional fiscal stimulus, whether through tax cuts or support measures, will increase inflationary pressures (announced inflation rates will depend on the details of these measures) if they are not funded … ,” he wrote.
Chris Curtis, head of political polling at Opinium Research, said the cost of energy bills is “definitely the most important issue for voters right now.” told CNBC.
“It’s important to make a good first impression as a new prime minister, and Liz Truss believes that by having a big say in one of the voters’ biggest priorities, it’s going to go some way to making that positive first impression,” Curtis said.
“Most voters tell us that we still don’t know much about her and that their opinions of her are very weak, so this is a very important moment for her to get on well with the public,” he said.
‘Impossible challenges’ for the most vulnerable
Warning that the next decade of winter “Terrible” maybe Some ask whether the upcoming package will be enough to protect the most vulnerable people unless serious action is taken to control gas prices.
According to a research note by Sarah Coles, senior personal finance analyst at Hargreaves Launceston, a freeze at current prices will increase energy needs and worsen the situation.
“Anyone paying by direct debit would technically already be spreading higher costs over the year, while those on lower incomes would be on pre-paid meters where they pay for the energy they use when they use it,” Coles said. .
“If prices are frozen at a slightly higher level, it will increase the odds against the most vulnerable this winter,” he said.
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