Liz Truss Plan help consumers and businesses with their electricity bills this winter seem to finally shape. new prime minister reportedly plans keep accounts for typical households in or below in current price upper level of 1971 pound sterling. The bills had to go up 80% up to £3,549 from October 1st and potentially up to £5,000. next year.
Exact data of in policy yet to be announced but there were estimates that it might cost as much as £130 billion over in next 18 months. In reality, predicting cost difficult because it depends on volatile price of natural gas.
What was proposed?
freezing on accounts for consumers to cover this winter and maybe all next year too much. Compression on gas supplies are aggravated due to invasion of Ukraine means there are several signs that prices could fall soon, forcing government play. This policy will see ministers reverse the Ofgem energy regulator’s decision, and in fact set in price households pay. According to National Energy Action estimates, keeping the cap at current the level will prevent 4.4 million people who will face fuel poverty from October.
How to freeze work?
government would guarantee funding energy providers to cover the difference between the ceiling and what they charge. Under one scheme, first proposed by ScottishPower, commercial banks would supply money to the state fund. Other option there would be a fund directly is under the control of the Treasury. Then retailers could attract on this fund to freeze customer accounts. debt built up suppliers will be reimbursed by consumers either through a surcharge on bills or from wider taxation over from 10 to 15-year period.
It is clear that the Ministry of Finance likes advertising bank option because he removes debts from his balance sheet. For companies, the plan would actually mean an exchange out riskier customer debt from people who can’t afford to pay their bills with more secured government-supported debt. But RBC Capital analyst John Musk warns: “There are limits with in policy as this would do little to stimulate energy efficiency and the proposed £130bn price tag is highly dependent on future commodity prices, as well as rate at which it’debt’ will gradually claw back if and when energy costs fall.”
There is also question over how people on prepaid counters, whose price cap higher than 1971 pounds sterling. “There is a moral question over either they should really need to pay more if you freeze prices for other. [The government] can look at this cohort and decide that they should pay at the same level. says Martin Young, senior analyst in Investek.
How will it be paid for?
Truss can finance it in three ways. plans: increasing other taxes elsewhere, cutting spending, or more public borrowing. The last would add to budget deficit is the gap between government expenses and income – it was already It is expected to be high year because of the mix of factors: growth weakened Brexit and Covid, rising pressure on public services, as well as an increase in interest payments on government debt among sky- high inflation.
Formerly this yearoffice for Fiscal Responsibility predicts borrowing this year will come in about £99 billion, which gives government around £30 billion of stock inside financial limits set Rishi Sunak. Most commentators expect rules will need be torn up at least temporarily to deal with with exacerbation of the energy crisis.
Despite this, in the UK as a whole debt heap of more over £2 trillion growing steadily higher consistent annual deficit, bringing it closer to 100% of GDP. perspective of further addition to this caused concern in financial markets over in governments ability to rule public finances sustainably.
critics of Truss’s plan, including Sunak, warned that losing faith in markets could worsen the situation, pushing up government borrowing costs. put more money in consumer pockets can also fuel higher inflation forcing the bank of England to raise interest rates more than expected – creating another kind of economic headache.
However, economists say the energy price freeze could help stop consumer header price inflation rate from peak to higher level. It would help restrict rise in borrowing costs on in governmentinflationary debt. Advisory firm Capital Economics said inflation could peak at around 11%. up from 10.1%, not much higher level, naming the farm package “efficient but expensive band-aid.”
What about business?
Companies are not subject to price lid and there facing huge climbs in invoice dated next month. Truss is reportedly ready to approve the plan for £40 billion package to support them. cost cheaper than the consumer estimates, because businesses who use large sums of power can usually negotiate lower energy prices.
There are two options to implement this – either setting a guaranteed unit price which enterprises will pay, or percentage reduction or unit price a reduction that all energy providers must offer businesses, according to Bloomberg. government then reimburse suppliers for their loss and review in price of energy accrued to enterprises on a quarterly basis. There is hope that policy can be implemented in October, when many long-term energy deals run out for firms.
Are there sectoral measures?
government is also consideration of proposals to encourage low-carbon electricity producers to switch from old renewable energy commitment certificate contracts to contracts for Difference. It could, it could allow companies for reduce wholesale cost of electricity, and hence bills, in short-term in come back for a more predictably longer.term income. Regulators are checking options break the link between wholesale price of gas and electricity, although this is unlikely to be in place to help this winter.