Liz Truss, the Conservative Party's new leader and incoming prime minister, drafted plans for a massive £130 billion support package over the next 18 months to help struggling households and businesses lower energy bills, according to policy documents seen by Bloomberg.
Truss faces massive economic challenges as energy hyperinflation, and a cost-of-living crisis darkens the outlook, with a recession becoming more likely. She has to act swiftly to avert social unrest.
On Oct 1, household energy bills were expected to jump 80% to £3,548 a year, forcing people into energy poverty as they must choose between heating their homes or putting food on the table. Under Truss' new plan, the energy price hike would be canceled. Instead, her team would develop a new unit price that households would pay for electricity and natural gas.
Liz Truss energy plan:— Sam Coates Sky (@SamCoatesSky) September 6, 2022
- freeze will be at around £2,500
- but £400 universal handout remains so that's why there are suggestions it's at roughly maintained at the £1,971 current rate
- paid by borrowing. No plan to claw back thru energy bills
1st reported @Steven_Swinford
According to documents, energy suppliers would charge households at a lower rate for power, and the government would cover the difference with the utility.
On Monday, Jacob Rees-Mogg, who is set to become Business Secretary, met with top executives of energy companies to discuss Truss' new plan. A person at the meeting said the execs were more open-minded about this plan than being hit with a windfall tax.
The new protections for households and businesses will be announced as early as the second half of this month and implemented in October. As for businesses, officials are in the process of drafting emergency legislation.
"Limiting households' bills could cost as much as £130 billion over the next 18 months ... cost of the plan to protect businesses will range from £21 billion to £42 billion over six months, depending on how low the cap is set. Over a year, the estimated costs to the government range from £28 billion to £67 billion," Bloomberg said.
The size of the UK energy bail-out is off-the charts. According to @alexwickham, on top of the £130 billion to freeze household energy bills, Liz Truss is mulling another £40 billion for small business.— Javier Blas (@JavierBlas) September 6, 2022
The ~£170 billion equals to the annual NHS budget, and it's >5% of GDP
Truss will be arriving at Balmoral Castle in Scotland to meet Queen Elizabeth II ahead of taking office later today as the successor to Boris Johnson.
Gilt yields across the curve retreated from highs on Truss' proposed power bill support package. The pound responded well as one of the top G-10 performers today, and UK stocks are positive.
Truss faces a colossal task to turn the UK around. Freezing power bills kicks the can down the road -- but will do nothing to solve the worsening energy crisis as Nord Stream 1 NatGas flows to Europe came to a halt over the weekend.