Image Source: Bloomberg
To protect people and businesses from rising energy costs, the new prime minister of the UK is reportedly planning to commit $172 billion, which will result in more government borrowing at a time when investors are already uneasy about the country’s finances.
Liz Truss, who took over for Boris Johnson earlier this week, informed legislators that she would reveal her strategies for addressing the sky-high energy cost on Thursday.
The Financial Times stated that Truss is developing plans to freeze the average annual household energy cost at about £2,500 ($2,860) for the following two years. However, in spite of bills increasing by 27% from their current level, this would prevent them from reaching the £3,549 ($3,954) mark that they would have in October absent government intervention.
It will be pricey. According to the Financial Times, the package may include £90 billion ($103 billion) in support for individuals and up to £60 billion ($69 billion) for firms.
If so, that would surpass the sum of the government spending by a stunning £80 billion ($91 billion), paying the salaries of millions of workers during the pandemic to avert widespread layoffs. Additionally, it would be significantly more significant than the €95 billion ($94 billion) the German government has already pledged to assist its citizens in covering their energy expenses this year.
Rising cost of living unbearable in the UK
The UK is struggling to find a way to pay for its comprehensive relief plan, just like the rest of Europe.
Truss’ ideas are still in the early stages, but she has already decided on one thing: On the hefty earnings of its energy businesses, the UK government does not impose a new “windfall tax.”
She disclaimed on Wednesday the possibility of prolonging the £5 billion ($6 billion) levy that the former finance minister Rishi Sunak imposed on UK oil and gas companies in May in order to pay for an earlier energy relief program.
In an effort to boost the faltering economy, Truss has frequently pledged to reduce taxes rather than raise them. However, she’ll probably have to increase government borrowing if there isn’t a windfall tax to pay the costs.
The nation’s new finance minister, Kwasi Kwarteng, also suggested that additional borrowing was coming over the weekend.
In addition to the tax cuts and increased defense expenditure pledged by Truss during her campaign, substantial borrowing runs the danger of alarming investors who are already concerned that the UK’s finances are headed in an unsustainable direction.
Raising prices and making it more difficult to pay for necessary imports may throw the pound into freefall. This year alone, the currency has already lost approximately 15% of its value in relation to the US dollar.
But in addition to the £33 billion (or $39 billion) the Institute for Government (IfG) estimates the government has already allocated this year, Britons urgently need assistance. According to the IfG, this assistance has been provided to households through a combination of tax savings, energy bill rebates, and direct payments.
According to a Wednesday estimate by research firm Auxilione, without a new strategy to control costs, the average annual bill for millions of people might exceed £5,700 ($6,513) starting next April. Moreover, small firms are seeing an even greater increase in their bills.