UK Prime Minister Truss announces financial support package for energy prices

British Prime Minister Liz Truss announced a sweeping stimulus package on Thursday to help Britons cope with soaring energy bills and attract investment in the energy sector.

Truss announced a “new energy price guarantee that will give people certainty on energy bills”.

In his first major move into the leadership role, Truss announced that the typical household ‘will pay no more than £2,500 ($2,880) a year for each of the next two years’, which the Prime Minister says will will give the average household “a £1,000 savings a year.

The cap will be in place from October 1.

There will be an equivalent guarantee for companies for the next six months. There will then be additional support for vulnerable sectors such as hospitality, the prime minister said.

The Prime Minister also suggested businesses look for ways to become more energy efficient and seek to produce their own energy.

The UK will be “a net exporter of energy” by 2040, according to Truss’ statement.

“A secure energy supply is vital for growth and prosperity,” she added.

“I will end the UK’s short-term approach to energy supply once and for all,” Truss concluded.

The full cost of the package will be presented by Finance Minister Kwasi Kwarteng later this month, but Truss says it will cut inflation by up to 5%.

In the run-up to the announcement, questions had been raised about how the bill would be funded, with speculation over whether the bill would land in taxpayers’ laps in the longer term.

Prior to the announcement, Britons’ energy bills were expected to hit £3,549 a year from October 1, up from £1,971 previously. That cap is expected to rise to £4,649.72 in the first quarter of 2023 and then to £5,341.08 in the second quarter, according to forecasts from consultancy Cornwall Insight.

The price cap in the UK, set by regulator Ofgem, essentially limits how much a supplier can charge for its tariffs, but this limit has increased recently due to rising wholesale prices, meaning that Britons have seen their bills skyrocket.

Truss also announced a temporary suspension of green levies to fellow lawmakers in the House of Commons.

It comes after Truss chose Jacob Rees-Mogg as the new Secretary of State for Business, Energy and Industrial Strategy. Rees-Mogg has previously been quoted as calling hydraulic fracturing an “interesting opportunity.”

Deutsche Bank estimated that Truss would implement an energy bill freeze. It has been speculated whether Truss will keep the October energy cap at £3,549, as announced by Ofgem on August 26, or whether the freeze will be set at £2,500 per household per year.

Reports also suggest a £40bn package would be put in place to support businesses with their energy costs, the bank said, bringing the total of expected support measures to £180bn.

This figure represents almost half of what was spent providing financial support during the Covid-19 pandemic and just over 8% of GDP, according to the bank.

Protests over energy bill set to continue
Truss’s announcement will be a big relief for people worried about their energy bills, according to Alice Haine, personal finance analyst at investment platform Bestinvest, but it may not be enough to allay all concerns about the coming winter.

“Energy prices are still significantly higher than a year ago, with some households already struggling to absorb rising costs, and food prices are also high. This means that household budgets will not are not completely out of the woods yet,” Haine wrote in a press release.

Businesses will also be relieved that they “don’t have to go out of business,” Haine said, but it’s unclear what will happen next year when the initial six-month price freeze ends.

The stimulus package comes as more than 180,000 people in the UK have pledged to cancel their energy bill payments on October 1 in protest at the increased energy cap.

Speaking to Sky News on Thursday ahead of the announcement, Don’t Pay movement organizer Lewis Ford said the campaign would continue if the measures implemented did not cut costs well below the price cap current.

“We are calling at 2021 levels,” he told Sky News. “A lot of people are going to be completely unable to afford it,” Ford said.

In October 2021, the price cap was £1,277 per year. It has been predicted that 12 million households in Britain (42%) would be in “fuel poverty” this winter if no financial support was in place. Energy poverty is defined as the inability to heat a household properly.

Source: CNBC

Comments are closed.