UK PM Truss walks the talk, caps power bills at £2,500 a year for two years

Liz Truss’s UK government announced a sweeping package of measures to contain spiraling energy bills, seeking to ease a historic squeeze on the cost of living that’s likely to define her premiership. 

“I recognise that people are struggling with their energy bills,” the new British prime minister said in the House of Commons on Thursday. “This is the moment to be bold. We are facing a global energy crisis, and there are no cost-free options.”

The program will cap the amount consumers pay for natural gas and electricity at a cost of billions of pounds to the Treasury. The government estimates it will reduce inflation by 4 to 5 percentage points from a peak that the Bank of England says may be above 13 per cent and others say may be much higher.

 

Truss said the measures will boost economic growth, which will bolster tax receipts to the Treasury. The Debt Management Office will publish an estimate for the impact on 2022-23 bond sales later this month when the Chancellor of the Exchequer delivers his emergency fiscal statement and estimates for what the program will cost. 

It marks the biggest effort yet to contain a surge in energy prices triggered when Russia slashed supplies to Europe. That along with soaring inflation is likely to push the UK economy into a recession this year, with little growth expected before the next election due in 2024.

Truss’s plan would cap the average cost of energy for households at £2,500 a year from October, well below the £3,548 they would have paid without the intervention. Consumers also get a £400 subsidy that’s already been announced. The program will last for two years, and businesses will get what the government described as an equivalent intervention lasting an initial six months.

Even with such a massive handout, domestic bills this winter will be about triple the level of a year ago. In addition to jolting financial markets alarmed about the scale of additional spending, Truss’s package also is likely to trigger a major political row.

PM says average household will save average of £1,000 a year; Labour leader criticises decision not to tax unexpected profits of energy giants.

She added that the intervention will curb inflation by up to five percentage points.  This will cut the cost of servicing government debt, she says.  Truss says that for too long the government has ignored the need for energy security. “I want to make the UK a net energy exporter by 2040.”