Prime Minister Liz Truss is planning to borrow billions to limit the expected sharp rise in energy bills for households and firms. According to reports, the government intends to pay energy companies to subsidise prices, with customers no longer required to pay back the support. The anticipated plan would increase government borrowing by more than £100 billion.
The final total, however, will be influenced by changes in gas and energy prices on the extremely unpredictable global energy markets. How long the government assistance will last is unknown. The government is reluctant to add money to customer bills for up to 20 years to repay government backed loans to energy firms.
The government is prepared to borrow to support the economy, but putting a large intervention on the never-never may raise some eyebrows. However, government sources say that over time, new energy supply measures will lower costs.
The government is expected to announce a plan to help businesses with their energy bills on Thursday. This could result in hundreds of thousands of businesses being saved from going bust or cutting their wage bills by firing staff.
Liz Truss, who defeated Rishi Sunak in the UK general election, faces a challenging situation as the economy continues to worsen and the markets for British government borrowing and currency have taken an ominous turn.
The surge in food prices has turned many of last year’s food charity donors into recipients, and supermarkets are trimming surplus stock, meaning there is less tinned goods available for donations.
Some people in Stone, Staffordshire, are struggling to afford to live and have stopped using hot water. Jo Yendole from Stone Community hub says the cost of gas and energy is making it difficult for some people to survive.
Rural Action Derbyshire, who offer a subsidised alternative to the cost of supermarkets, reported people returning their fresh food to a pantry because they couldn’t afford refrigeration costs. They were risking their health by eating food that couldn’t be stored correctly.
Liz Truss has said she intends to solve the problem of fuel poverty, but the reality for the poorest customers is that a typical £50 on prepayment meters might only last two days from January.
As the new prime minister prepares to announce a deficit fund for energy companies, the dollar has been strong and sterling has fallen against the euro and the dollar.
The government and the Bank of England will have to work closely together in the coming months to balance inflation and recession. If the government needs to borrow more, it will have to find buyers for the debt among pension funds, insurers and foreign buyers.
The first step will be an increase in borrowing if the PM is to keep her campaign promises to implement tens of billions in tax cuts and support the launch of an energy bailout programme for both consumers and businesses at a time when market energy prices may rise much further.
However, if she does not support both sectors, the economy would lose disposable income, many small enterprises will fail, and unemployment will also rise. Already, the new prime minister had to strike an extremely delicate balance between inflation and recession. The manoeuvring space has shrunk during the past month.