LONDON — British Prime Minister Liz Truss on Thursday announced a sweeping stimulus package to help Britons deal with rising energy bills and lure investment in the energy sector.
Truss announced a “new energy price guarantee that will give people peace of mind about energy bills”.
In her first major step in leadership, Truss announced that the typical household “won’t pay more than £2,500 ($2,880) a year for the next two years,” which the Prime Minister said would “give the average household a pound will be 1,000 savings per year.”
The upper limit applies from January 10th.
There will be an equivalent guarantee for companies for the next six months. There will then be further support for vulnerable sectors such as hospitality, the prime minister said.
The Prime Minister also suggested that companies should look at ways to become more energy efficient and produce their own energy.
According to Truss, the UK will be “a net energy exporter” by 2040.
“Energy security is crucial for growth and prosperity,” she added.
“I will end the UK’s short-term approach to energy once and for all,” concluded Truss.
The total cost of the package will be announced by Finance Minister Kwasi Kwarteng later this month, but Truss says it will curb inflation by up to 5%.
Questions had been raised prior to the announcement how the bill would be financedwith speculation as to whether the bill will end up in the lap of taxpayers in the longer term.
Before the announcement were energy bills for Brits is expected to reach £3,549 a year from Oct 1, from £1,971. According to consultancy Cornwall Insight, that cap will rise to £4,649.72 in Q1 2023 and £5,341.08 in Q2 forecasts.
The price cap in the UK, set by regulator Ofgem, essentially limits the amount a provider can charge for their tariffs, but this cap has risen recently due to the rise in wholesale prices – meaning Brits’ bills are soaring are shot.
Truss also announced a temporary suspension of environmental taxes to fellow lawmakers in the House of Commons.
This comes after Truss chose Jacob Rees-Mogg as their new secretary of state for business, energy and industrial strategy. Rees-Mogg was previously quoted as saying fracking is an “interesting opportunity”.
Deutsche Bank estimated that Truss would enforce a utility bill freeze. There has been speculation as to whether Truss would leave the October energy cap at £3,549, as suggested by Ofgem on 8/26, or whether the freeze would be set at £2,500 per household per year.
A £40bn package would also reportedly be available, according to the bank.
The figure is almost half what was spent on financial support during the Covid-19 pandemic and just over 8% of GDP, the bank said.
The protests against the energy bill are likely to continue
According to Alice Haine, personal finance analyst at investment platform Bestinvest, the announcement of Truss will come as a huge relief to people worried about their energy bills, but it may not be enough to allay all concerns about the coming winter.
“Energy prices are still significantly higher than a year ago, some households are already struggling to bear the rising costs and food prices are also high. This means that household budgets are not completely out of the woods,” Haine wrote in a press release.
Businesses will also be relieved that they “are not being forced to shut up shop,” Haine said, but it’s “unclear” what will happen next year when the initial six-month price freeze comes to an end.
The stimulus package comes as more than 180,000 people in the UK have obliged to cancel their utility bill payments on October 1 in protest against the increased energy cap.
Speaking to Sky News on Thursday ahead of the announcement, Don’t Pay movement organizer Lewis Ford said the campaign would go ahead if the measures implemented did not bring costs well below the current price cap.
“We are demanding the level of 2021,” he told Sky News. “A lot of people aren’t going to be able to afford that at all,” Ford said.
In October 2021 the price cap was £1,277 per year. It was predicted that 12 million households in the UK (42%) would live in ‘fuel starvation’ this winter if financial support were not provided. Fuel poverty is defined as the inability to adequately heat a home.