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London
CNN Business
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The new Prime Minister of the United Kingdom is reportedly preparing to commit as much £150 billion ($172 billion) to protect households and businesses from rising energy bills, adding to government debt at a time when investors are already on edge about the country’s finances.
Liz Truss, who replaced Boris Johnson earlier this week, told lawmakers on Wednesday that she would unveil her plans to tackle high energy prices on Thursday.
The Truss plans to stabilize the average annual energy bill for households at around £2,500 ($2,860). For the next two years, the Financial Times reported. That would mean bills would rise 27% from their current level, but keep them below £3,549 ($3,954) starting in October without government intervention.
It will be expensive. The plan could include up to £90 billion ($103 billion) in support for families and up to £60 billion ($69 billion) for businesses, the FT reported.
If so, it will exceed the amount the government spends to subsidize the salaries of millions of workers Preventing mass layoffs by £80 billion ($91 billion) during the pandemic. It would also dwarf the €95 billion ($94 billion) the German government has pledged so far this year to help its households and businesses. Meet their energy costs.
Like the rest of Europe, the United Kingdom is grappling with how to pay for its ambitious relief package.
The details of Truss’ plans are still unclear, but she has already confirmed one thing: the UK government is not imposing a new “windfall tax” on the bumper profits of its energy companies.
On Wednesday, she ruled out extending a £5 billion ($6 billion) tax on UK oil and gas producers introduced in May by former finance minister Rishi Sunak to fund an earlier energy relief package.
“I am against windfall taxes,” she told parliament. “I believe it is the wrong thing to do to stop companies from investing in the United Kingdom at a time when we need to grow the economy,” she added.
Truce has repeatedly promised to cut rather than raise taxes in hopes of reviving the ailing economy. Without the windfall tax, she would have to raise government debt to subsidize the bill.
The country’s new finance minister, Kwasi Kwarteng, also signaled over the weekend that more borrowing is on the way.
“Given the severity of the crisis we face, some fiscal relief will be needed to help people through the winter,” he wrote in the FT.
Yet heavy borrowing — in addition to tax cuts and increased defense spending promised by Truss during his campaign — has riskier investors already worried that the UK’s finances are unsustainable.
That could send the pound into a tailspin, pushing up prices further and making it harder to pay for essential imports. The currency has lost about 15% of its value against the US dollar this year.
But Britain desperately needs support, in addition to the £33 billion ($39 billion), the Institute for Government (IFG) calculates, that the government has already committed this year. The help has come through a mix of tax cuts, concessions on energy bills and direct payments to households, the IFG said.
Without a new plan to curb prices, millions of people could see their average annual bill rise above £5,700 ($6,513) from next April, research firm Auxilion estimated on Wednesday. Bills for small businesses are rising at an even faster rate.
– Julia Horowitz contributed reporting.
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