New UK PM Liz Truss is due to announce a costly plan to tackle soaring energy prices – Copyright UK PARLIAMENT/AFP JESSICA TAYLOR
New British Prime Minister Liz Truss was on Thursday expected to unveil a costly plan to freeze domestic fuel bills to help ease the burden of a soaring cost-of-living crisis.
Truss only took over from Boris Johnson on Tuesday, but has vowed to hit the ground running as calls mount for urgent action to help hard-pressed households and businesses.
Reports suggest the plan could top more than £100 billion ($116 billion), surpassing Britain’s Covid-era furlough jobs support scheme.
Neither Truss nor her office have confirmed the eye-watering sums. Downing Street on Wednesday night said only that it would be a “bold plan of action”.
“I know families and businesses across the country are worried about how they are going to make ends meet this autumn and winter,” she said.
“Putin’s war in Ukraine and weaponisation of gas supply in Europe is causing global prices to rise –- and this has only made clearer that we must boost our long-term energy security and supply.
“We will take action immediately to help people and businesses with bills but also take decisive action to tackle the root cause of these problems, so that we are not in this position again.”
British households are facing a colossal 80-percent jump in domestic electricity and gas prices from October, which have stoked fears millions will be unable to heat their homes this winter.
A further rise is predicted from January.
– ‘Immediate action’ –
Britain is heavily reliant for its energy needs on gas, but prices have surged this year after key producer Russia’s invasion of Ukraine.
Truss is also expected to slash taxes to boost the economy, which the Bank of England forecasts will tank in an inflation-induced recession.
Bloomberg last month quoted Treasury estimates that British gas and electricity producers were on course to make excess profits of up to £170 billion in the next two years.
Truss on Wednesday reaffirmed her opposition to windfall taxes on energy giants, although aides said she would not row back on one imposed by former finance minister Rishi Sunak.
She also called for more North Sea oil and gas projects while Downing Street hinted that a moratorium on fracking could be lifted to secure more valuable energy.
Fracking was banned in 2019 after causing tremors in northern England, and easing restrictions could be problematic, as it runs counter to the Tories’ 2019 general election manifesto.
Truss, who was elected only by a vote of Conservative members, has no wider public mandate to rip up the commitment.
“The manifesto stands,” her spokesman told reporters on Wednesday.
– Slump –
Media suggest Truss wants to cap the average annual household energy bill at £2,500 per year — £1,000 less than October’s planned level.
The Times newspaper reported that this move would be financed by taxation revenues and debt.
Such a plan would contrast with Truss’ comments during the Conservative leadership campaign, when she rejected “sticking plaster” solutions to the cost-of-living crisis such as direct government aid.
Financial markets are meanwhile fretting over the prospect of worsening public finances, which were already ravaged by emergency Covid expenditure.
On bond markets, the UK’s 10-year borrowing rate topped 3 percent on Tuesday for the first time since 2014.
That imperils Britain’s ability to borrow cheaply if the markets reject Truss’s plans.
Recession fears then sent the pound slumping Wednesday to its lowest dollar level since 1985 — when Margaret Thatcher was in power.
UK inflation spiked to a 40-year peak of 10.1 percent in July, with some experts predicting a jump to 18 percent.
– Sticking plaster –
An energy freeze would be a costly measure that might not improve the situation in the long run, according to economist Neil Shearing at research consultancy Capital Economics.
“If the new Truss government implements a freeze on domestic gas and electricity prices then inflation may peak at around 11 percent in October this year,” Shearing said.
“A freeze in retail gas and electricity prices is an expensive sticking plaster, but not a long term solution,” he added, noting that the UK economy was still likely to enter recession.
Added to the backdrop, Truss also faces the prospect of growing industrial unrest as more UK workers protest over wages that have failed to keep pace with sky-high inflation.