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- Truss lays out a plan on his third day in office
- Household bills will be capped at £2,500
- Providing liquidity to the energy market with BoE
- The moratorium on fracking fell
LONDON, Sept 8 (Reuters) – Britain’s new leader Liz Truss on Thursday capped increases in consumers’ energy bills for two years in a package to limit the economic shock of the war in Ukraine that could cost the country more of 100 billion pounds ($115 billion).
With Britain facing a long recession caused by a near quadrupling of household energy bills, Truss set out what he described as bold and immediate action to protect consumers and businesses just three days after his taking possession
“This is the time to be brave, we are facing a global energy crisis and there are no free options,” he told Parliament.
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“We are supporting this country through this winter and next, and addressing the root causes of high prices so that we are never in the same position again.”
He said new supply methods would also be introduced, with a moratorium on fracking being dropped and new oil and gas exploration licenses for the North Sea.
“Energy policy over the past decade has not focused enough on securing supply,” Truss said.
It said average household energy bills would remain at around £2,500 a year for two years, avoiding the expected 80% jump due in October that threatened the finances of millions of homes and businesses.
As wholesale gas prices remain highly volatile, the government did not put a price on the package, but the support is expected to run into the tens of billions of pounds and will be financed by government loans.
Deutsche Bank has estimated that the energy price offset plus the tax cuts Truss has also promised could cost a combined £179 billion, or about half of what Britain spent on the COVID-19 pandemic. 19.
Separately, the Treasury and the Bank of England will also address extraordinary liquidity requirements facing energy companies that Truss said would be worth £40 billion.
Businesses will also be supported, but with details to come later.
The full cost will be given in a fiscal update by new Finance Minister Kwasi Kwarteng later this month.
THE PRICES AROUND
The scale of the plan, from a leader who had ruled out “handouts” during his campaign to succeed Boris Johnson, has rattled financial markets. The pound fell against the dollar on Wednesday to levels last reached in 1985. read more
Sterling rose around half a cent against the dollar and euro as Truss spoke, while the British government bond market, which had fallen sharply in the weeks leading up to Thursday’s announcement, was flat.
European energy prices started to rise as the world emerged from the COVID-19 lockdown and then rose in February after Russia’s invasion of Ukraine.
Average British house prices, which are set under a cap, rose 54% in April to £1,971 and were due to jump 80% to £3,549 on the year in October.
The government expects the package to curb inflation by up to 5 percentage points. Consumer price inflation in Britain rose to 10.1% in July, the highest since February 1982, and is expected to rise to 13% in October.
While the new cap will soften the blow for millions of households, it still poses a threat to those on limited incomes. An Office for National Statistics survey published in September showed that more than four in 10 adults already found it very or somewhat difficult to pay their energy bills.
Charities and consumer groups welcomed the move as immediate support, while businesses said they needed more detail.
The opposition Labor Party questioned why the package was not partly funded by a windfall tax on the sector and why more was not being done to improve insulation.
Britain was a net exporter of energy from the late 1980s until 2004 following the development of North Sea oil and gas fields, but output has steadily declined since a peak in 1999. The country is now a net importer of all major fuel types, government data show. , with 38% of the energy it used in 2021 imported.
To address long-term supply, the government will issue more than 100 oil and gas exploration licenses in the North Sea and scrap a ban on fracking, allowing projects to go ahead if local communities agree. Read more
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Written by Kate Holton; Additional reporting by Paul Sandle and Kylie MacLellan; edited by Rosalba O’Brien, John Stonestreet and Michael Holden
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