Britain pledged on Wednesday to cap wholesale electricity and gas costs for businesses in a bid to ease pressure on the economy caused by a price spike not seen in 50 years.
From next month, wholesale power prices will be capped at less than half the market price to around 211 pounds ($239) per megawatt-hour (MWh), and for gas to 75 pounds per MWh, compared with forecast market prices of 600 pounds and 180 pounds respectively.
“We intervened to stop business collapsing, protect jobs and curb inflation,” Finance Minister Kwasi Kwarteng was quoted as saying by Reuters.
Wholesale gas and electricity prices in Europe jumped after Russia invaded Ukraine and have remained volatile since then. Read more: Europe has spent half a billion euros on energy compensation
Groups representing businesses from pubs to steelmakers welcomed the government’s intervention, saying the scheme was a lifeline for the government to companies struggling to survive.
The six-month government support will cost the budget around £42bn, on top of more than £100bn earmarked for the already announced household support scheme.
On Friday, Kwarteng is expected to give more details on where the government will find the money to pay for the energy scheme, while at the same time delivering on promises to cut taxes.
Investors say Friday’s statement will be a critical test of confidence in Britain’s public finances as borrowing costs rise alongside a commitment to higher spending and reliance on faster economic growth.
The Business Energy Scheme will initially apply from 1 October to 31 March 2023 for all non-domestic energy users, including charities, and the public sector such as schools and hospitals, as well as businesses.
How Liz Truss promises to change Britain
Liz Truss, the new leader of the Conservative Party and future British Prime Minister, will be sworn in on Tuesday before the Queen to serve in difficult times.
Her Conservative Party had to part ways with Boris Johnson, the prime minister who managed to seal the kingdom’s exit from the EU but lost the trust of Britons amid a series of scandals over his and his cronies’ adherence to COVID-19 restrictions and appointments, which revolted even his party members.
Liz Truss is looking to turn over a new leaf after succeeding in the election process to nominate a new Conservative leader, ousting the front-runner for the job, former finance minister Rishi Sunak.
The two have had the opportunity for a month to publicly present their views on the governance of the United Kingdom so that members of the Conservative Party can make an informed choice. According to the views expressed by Truss, her government will stick to relatively more conservative decisions without significantly changing the course of the Johnson government, especially in foreign and defense policy.
The economic and energy crisis
Liz Truss’ main idea for dealing with the economic crisis, which will see millions of Britons facing a drop in their living standards, is to loosen financial discipline. The government will draw up an emergency budget and review government spending, canceling planned new taxes.
The next British government will finally bury the idea of taxing the excess profits of energy companies, which are enjoying record revenues due to rising energy prices. Instead, the energy and water regulators will be forced to work more efficiently by changing the legislative framework.
Liz Truss intends to reverse the 1.25% payroll tax increase which was introduced by Rishi Sunak as finance minister in April to help pay for the health and social care system. Her competitor’s planned increase in corporate tax from 19% to 25% from the beginning of 2023 will also not happen.
Instead, the Truss government plans to impose a temporary moratorium on environmental and social charges added to consumers’ electricity bills to help households cope with record price rises.
“I will provide immediate support to ensure people do not face exorbitant fuel bills. I will be firm in my approach,” Truss wrote in an article in the Sun newspaper.
Is a power regime possible in Buckingham Palace and why household bills jumped – read here.
Trots will also ditch the planned junk food tax, which was to have put an additional tax on several foods and drinks high in fat, salt, or sugar that worsen Britons’ health status.
Although Britain is not dependent on Russian natural gas, the new prime minister is proposing to support shale gas extraction in areas where people are not opposed to fracking, as an opportunity to lower gas prices.
To raise living standards, she proposes creating low-regulation “investment zones” and changing the way mortgages are priced so more people can access the housing market while incentivizing local authorities to build more houses.
Migrants – legal and illegal
Truss also wants to loosen the targets by which Britain has committed to making its economy carbon neutral by mid-century, bringing more market elements into the process.
Concerning the seasonal workers who have melted away after Brexit, Liz Truss has promised to temporarily expand the opportunities for labor to come from Europe to ensure that farmers have access to labor.
Britain will take extra measures to protect itself against illegal migration across the Channel, which has increased since it left the EU. This would include a 20% increase in border agents and a 100% increase in maritime patrols.
At the same time, London will seek to conclude agreements with countries that are the source of migration to return their citizens illegally staying in the UK. As foreign minister, Truss struck a repatriation deal with Rwanda, raising questions about human rights.
Old friends and new priorities
Truss also foresees an increase in defense spending to 3% of GDP by 2030 from the 2.3% of GDP set for this year and NATO’s target of 2%.
The new British government will continue firm support for Ukraine, including the provision of military and humanitarian aid. London will push for a “new Marshall Plan” for Ukraine and want a leading role in its implementation.
Liz Truss, who until now served as foreign secretary, believes British diplomacy should focus on China and Russia while negotiating with Commonwealth members a trade deal to counter China’s market power.
Brussels cannot look forward to better days from the next cabinet, as Truss vows to pursue a hard-line course of EU disengagement after Brexit. She aims to repeal all existing laws that set European standards by next year and will not allow another referendum on the secession of Scotland, which is seen as part of the EU.
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