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Truss to Set Out Plan to Contain Spiralling UK Energy Bills

·4 min read
Truss to Set Out Plan to Contain Spiralling UK Energy Bills

(Bloomberg) --

Most Read from Bloomberg

Liz Truss will set out her plan to tackle soaring energy bills on Thursday, using her first significant act as UK prime minister to try to head off the intense pressure she faces to ease an historic cost-of-living crisis.

“I know families and businesses across the country are worried about how they are going to make ends meet this autumn and winter,” Truss said in an emailed statement. “We will take action immediately to help people and businesses with bills, but also take decisive action to tackle the root cause of these problems, so that we are not in this position again.”

https://t.co/arsHTdDjbY #PMQs pic.twitter.com/Sxzvdgw2I2

— Bloomberg UK (@BloombergUK) September 7, 2022

Truss Earmarks £130 Billion to Keep UK Energy Bills Below £2,000

Truss emerged victorious in a Conservative Party contest, which played out over the summer against a backdrop of worsening economic data, headlined by surging inflation and an 80% rise in energy bills set to kick in from October. On Wednesday, the pound slumped to its lowest against the dollar since 1985.

Where most leaders might be enjoying a honeymoon period, Truss already faces the prospect of her premiership becoming defined by how she handles the headwinds less than 48 hours after taking office.

#PMQsTruss responds: "I believe it is the wrong thing to be putting companies off investing in the UK" https://t.co/wMr9oaR9xO pic.twitter.com/RwEovdkhML

— Bloomberg UK (@BloombergUK) September 7, 2022

In the House of Commons, she is expected to set out an economic intervention that could see the government spend as much as £200 billion ($230 billion) over the next 18 months to contain energy prices, Bloomberg reported Monday.

Bills Pressure

For an average household, the aim would be to effectively cap annual energy bills at about the current level of £1,971, compared to the £3,548 announced by regulator Ofgem from next month. Meanwhile, Truss’s ministers intend to fix the price paid by businesses, with energy suppliers reimbursed for any losses, according to documents seen by Bloomberg.

Though the government has yet to set out details, Truss’s plan as currently drawn up would be a major fiscal gamble, drawing comparisons with the £310 billion handed out during the coronavirus pandemic. Even with the handout, domestic bills are still set to be almost triple this winter compared to last.

It’s also fraught with political risks, which started to become clear during her first Prime Minister’s Questions on Wednesday when she ruled out funding the support package with a fresh windfall tax on energy firms.

That opened the door to an attack from opposition Labour Party leader Keir Starmer, who accused Truss of making a “political choice” in allowing energy firms to make excess profits from the surge in prices since Russia’s war, leaving taxpayers to “foot the bill for decades.”

Tax Battle

According to Treasury estimates, energy firms’ excess profits -- measured as the difference between the profits energy producers are predicted to make in the future, and the profits they could have expected to make based on the outlook for prices before Russia’s invasion of Ukraine -- may reach as much as £170 billion over the next two years.

Starmer’s position is popular with voters but anathema to many Tories, who pride themselves as being pro-business.

Truss came to power by appealing to the ideological right of the Tory party, who responded to her pledges to cut tax and pursue a smaller-state, Thatcherite vision for the country. And it’s those Conservatives who she was talking to when she told Starmer: Britain can not “tax our way to growth.”

But the expected massive intervention to fix energy prices illustrates the difference between campaigning and governing, and while she ruled out a fresh windfall tax to pay for it, her spokesman later confirmed the government would retain an earlier levy -- which is expected to yield about £5 billion in its first year -- that was introduced under Boris Johnson.

“If we fail to act, if we don’t protect the economy against the shock of the size and scale we are talking about, then there is going to be enormous damage,” cabinet minister Simon Clarke told Sky News on Thursday, when asked if the government is at risk of borrowing as it responds to the crisis. “I think markets will respect that this is the most sensible thing to do.”

In the Commons, Truss said she would set out plans for the UK to use more of its own energy supplies including oil and gas from the North Sea, and that the government is committed to building more nuclear power capacity.

Kwasi Kwarteng, who was appointed Chancellor of the Exchequer on Tuesday, has been working on plans to offer fixed-price contracts to existing renewable-energy producers as a way to blunt the impact of soaring power costs, Bloomberg reported last week, citing people familiar with the discussions.

Truss is likely to hold details of her broader economic plans back, with her spokesman, Max Blain, pointing to a fiscal statement in the coming weeks.

(Updates with Clarke comment on market risks in 14th paragraph)

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