The people of Great Britain are waiting with eager anticipation for the presentation of the government’s new economic plan tomorrow (Friday), which is designed to “rescue” households from economic impoverishment by generously financing their energy bills. Just before winter, and a week before rates are set to jump by more than 80% to £3,500 a year, new Prime Minister Liz Truss has promised to freeze energy prices at £2,500 for the next two years.
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Yesterday (Wednesday), a minister in the British government presented a generous plan in itself, to cut in half or a quarter the energy prices for small businesses, which are threatening to go bankrupt due to a jump of thousands of pounds in their heating and electricity bills.
The British plan, which is still not entirely clear and has yet to be announced, makes the United Kingdom the country expected to spend the largest amount in direct aid to residents and businesses to deal with rising energy prices. The price of gas is still six to eight times higher than its normal price, the price of electricity which is adjacent to it is also skyrocketing.
The UK is expected to allocate between £100bn and £200bn to this task, with other European governments now starting to introduce their own energy funding schemes.
British Economy Secretary Jacob Rees-Mogg, who was appointed last week, yesterday presented a comprehensive plan that sets a ceiling price of £211 per megawatt hour for electricity and less funding for gas use for small businesses, hospitals and schools, which will be valid for half This coming year only. This is double the price of what businesses paid last year, but less than half of what is expected to be paid this winter (£540).
A real crisis
As with the financing of the energy bills of the residents themselves, it is not yet clear how the plan will be financed, which also includes the provision of 40 billion pounds in guarantees to energy companies that are threatening to go bankrupt due to the high prices they pay, and restrictions on raising rates.
Apparently, the government intends to raise debt and deepen the annual deficit and national debt to fund the plan, which pushed the yield on 10-year British bonds higher last week. The pound is again at a four-decade low against the dollar, standing at just 1.13 (a decrease of close to 20% per year).
The British plan was announced against the background of an energy crisis and a real cost of living crisis hitting the United Kingdom, at the same time as a creeping recession involving economic contraction. Inflation in the country passed the 10% mark last month. One in five Britons, according to a survey published today (Thursday), has not yet paid one of his current bills. This is a 30% increase compared to last month.
Today the Bank of England is expected to raise the interest rate by another 0.75%, to a level of 2.25%. The Bank of England’s frequent interest rate hikes are intended on the one hand to reduce demand and slow down the economy, but on the other hand involve raising mortgage repayments for many borrowers.
A growing trend
The British step is just part of a growing trend of governments to subsidize the energy consumption of European residents. The Bloomberg agency calculated that so far European governments have pledged a total of half a trillion euros for this purpose.
After Great Britain, which allocates no less than 6.5% of its GDP for this expenditure, stands Italy, which has already pledged to allocate 60 billion euros (3.35% of GDP). Italy is also expected to deepen its debt, which already stands at a dangerous ratio of close to 150% of GDP.
Germany is considering a similar move, but it has not yet been announced. France has announced maximum energy prices, which are possible among other things due to the fact that two-thirds of the electricity in the country is produced from nuclear reactors, but will spend at least 50 billion euros on this in any case.
So far, European governments have pledged to spend about 1.7% of their total GDP on energy subsidy programs, according to a calculation by the Bruegel Research Institute. The Union is working on a plan to raise at least part of this money from “excess profits” of energy companies that are not in the gas sector.