Liz Truss has been sworn in as Britain’s new prime minister and on Tuesday will finalize a package that could cost more than £100 billion to tackle Britain’s energy crisis and protect homes and businesses.
Emergency measures, which will lead to a sharp increase in public debt, are the priority of the new administration. Truss was appointed by Queen Elizabeth to the monarch’s Balmoral estate in Scotland after beating her rival Rishi Sunak for the leadership of the Conservative party.
His plan would involve capping household energy bills at around £2,500 over the next two winters. This is higher than the current cap of £1,971, although consumers will also receive a previously announced one-off payment of £400 to help offset the price rise.
The Truss plan will protect households from rising gas and electricity prices. The previous cap had been set to jump to £3,549 next month with a planned rise above £6,000 in 2023.
Truss’s plan for households is thought to cost around £90bn and would be funded by government borrowing, rather than taxpayer-backed loans to energy companies which will be recouped through higher bills over a period of 10 to 20 years.
Truss’ team is still finalizing separate measures to protect businesses from possible ruin. “This is the part of the package that is more fluid,” said a person close to the discussions.
The business element, which is being drawn up by Jacob Rees-Mogg, who is expected to be the new business secretary, could add tens of billions of pounds to the final bill. “It will be extraordinarily huge,” said an ally of the new prime minister.
Truss, a small-state, low-tax Conservative by instinct, will make her first act in Downing Street a massive state intervention in the energy market.
The new prime minister’s team has argued that because governments can borrow more cheaply than energy companies, the bailout package should be treated as public debt.
“If it had been done as loans, everything would have been more expensive and you would have had to start explaining how the loans would be repaid, by whom and over what period,” said a person briefed on the plan.
Allies of Truss noted that the precise cost of the plan depended on the movement of wholesale gas prices over the next 18 months, with the taxpayer exposed to further large increases.
Under the plans, the government would subsidize the wholesale cost of gas, allowing suppliers to cap the price of energy to homes and businesses.
A senior official confirmed Truss’ team was drawing up the plans ahead of a potential announcement on Thursday: “There will be a cap, freeze or guarantee in the wholesale gas market,” he said.
Truss will address the nation as prime minister for the first time in a speech from Downing Street at around 4pm, after which he will begin naming his cabinet.
The rescue package will be a major challenge for Britain’s public finances and for Kwasi Kwarteng, who is expected to be appointed chancellor, as Truss has also promised tens of billions of pounds in tax cuts.
Boris Johnson’s family, political colleagues, staff and supporters applaud during his speech on Tuesday © Neil Hall/EPA/Shutterstock
Ahead of the transition of power, outgoing Prime Minister Boris Johnson gave a defiant speech outside Downing Street, listing the achievements of his administration. But he promised to give his wholehearted support to the new Truss administration.
“I’m like one of those booster rockets that has done its job and will gently re-enter the atmosphere and splash invisibly into some remote, obscure corner of the Pacific,” he said.
“Like Cincinnatus, I return to my plow and will offer this government nothing but the most ardent support.”
Some historians believe that Cincinnatus, despite his famous plow quote, later returned as ruler, a fact that classics graduate Johnson will have been aware of.
Johnson did not dwell on the series of complex dilemmas facing his successor, ranging from rising inflation and an expected recession to a wave of strikes, or his own personal conduct as prime minister.
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Instead, he chose to focus on the positives, saying private sector investment was “flooding” and unemployment was at its lowest level for half a century. “We got this economy moving again, despite the opposition and the naysayers.”
He declared that he had left the economy strong enough to allow the new administration to give people “the cash they need” to overcome the energy crisis.
“If Putin thinks he can succeed by intimidating or blackmailing the British people, he is totally deluded,” Johnson added.
He said his government had “delivered Brexit”, carried out the fastest Covid-19 vaccine rollout in Europe, started work on high-speed rail lines and delivered first supplies of arms to the Ukrainian government shortly after the Russian invasion.
Johnson was unable to withstand a final inquiry by Tory MPs who ousted him in July, despite winning a confidence vote earlier this year.
“The baton will be delivered in what has unexpectedly turned out to be a relay race. . . they changed the rules halfway through, but that doesn’t matter now.”