According to reports, the new prime minister of the UK is getting ready to borrow up to ($172 billion) to protect people and businesses from rising energy costs. At a time when investors are already concerned about the country’s finances, this would represent an increase in government debt.
Liz Truss, who replaced Boris Johnson earlier this week, told legislators that she would reveal her strategies for addressing the sky-high energy cost on Friday.
According to the Financial Times, Truss is developing measures to keep home yearly energy costs at about £2,500 ($2,860) for the following two years. Bills would increase by 27% as a result, although they would remain far lower than the £3,549 ($3,954) per month high they would otherwise reach starting in October.
Expenses will be high. According to the Financial Times, the plan may provide up to £60 billion ($69 billion) in support for firms and up to £90 billion ($103 billion) for individuals.
If that’s the case, it will surpass by a stunning £80 billion ($91 billion) the sum that the government spent paying millions of workers’ salaries with subsidies during the pandemic to avoid widespread layoffs. Additionally, it would be significantly greater than the €95 billion ($94 billion) pledged by the German government so far this year to assist with the cost of energy for its citizens’ homes and companies.
Citizens in the UK are in a financial crisis
The UK is unsure how to pay for its extensive aid program, just like the rest of Europe.
Truss’ plans are still in the early stages, but one thing is already clear: In response to the record profits of its energy businesses, the UK government is not enacting a new “windfall tax.”
On Wednesday, she disallowed an extension of the £5 billion ($6 billion) charge that former finance minister Rishi Sunak imposed on UK oil and gas companies in May to pay for an earlier energy relief program.
Read Also: Citizens Advice wants government to cut energy costs
Truss has frequently pledged to cut taxes rather than raise them to boost the faltering economy. As a result, she will probably need to raise government borrowing in order to pay bills without a windfall tax.
According to remarks made over the weekend by Kwasi Kwarteng, the nation’s new finance minister, more borrowing was anticipated.
Such substantial borrowing, in addition to the tax cuts and increased defense expenditure pledged by Truss throughout her campaign, might further frighten investors who are already concerned that the UK’s finances are headed in an unsustainable direction.
With costs rising much further and paying for necessary imports becomes more difficult, it may spiral the pound into a spiral. This year alone, the value of the currency in relation to the US dollar has fallen by around 15%.
The Institute for Government (IfG) estimates that the government has already committed £33 billion ($39 billion) this year, yet the British people still need assistance desperately. According to the IfG, this support has come in the form of a combination of tax breaks, energy bill rebates, and direct payments to households.
Auxilione, a research company, said on Wednesday that without a new strategy to control costs, the average annual bill for millions might reach £5,700 ($6,513) as of next April. Even more quickly, costs are increasing for small enterprises.
