U.K. Taxpayers On The Hook For Truss’s £200 Billion Energy Plan
UK taxpayers will be on the hook for as much as £200 billion ($230 billion) over the next 18 months.
(Bloomberg) -- UK taxpayers will be on the hook for as much as £200 billion ($230 billion) over the next 18 months to cover the cost of Prime Minister Liz Truss’s plans to contain energy prices, according to people familiar with the policy.
Documents seen by Bloomberg state that energy suppliers will “receive funding from HM Government” to cover the difference between wholesale market costs and what they are legally allowed to charge customers. As currently structured, those costs would be financed out of government borrowing, the people said, asking not to be named because the discussions are private. A spokesman for Truss declined to comment.
Truss takes office on Tuesday as successor to Boris Johnson and is under pressure to deliver swift and decisive action to shield British households and businesses from surging energy costs as Russia chokes off the supply of natural gas to Europe.
As currently drawn up, the package includes £130 billion to freeze household bills until April 2024 and a discount scheme for business that could cost up to £67 billion over 12 months, the documents show.
The scale of the support comes close to the £310 billion handed out during the pandemic and will add about 10% to the UK’s £2.3 trillion in national debt. Borrowing that amount would drive the budget deficit to level that have only been seen in modern times during the gobal financial crisis and the Covid pandemic.
Paying for the support may put government borrowing costs under pressure as the government raises the debt in bond markets. Truss has limited room for maneuver on public finances after promising “no new taxes” during her campaign to win the leadership of the governing Conservative Party.
She has promised to make government savings to pay for her separate £30 billion of payroll and corporate tax cuts and Deutsche Bank estimates she could find £15 billion by shrinking the public sector workforce.
“I’m skeptical about whether we’ve got room for big increases in spending and tax cuts,” former Chancellor of the Exchequer Philip Hammond said on Bloomberg TV. “The UK economy is perhaps more fragile than many UK citizens understand. We can’t just solve that by borrowing money and handing it out to people.”
Under an alternative industry proposal, the money would have come from a private deficit fund guaranteed by the government and repaid over the course of a decade or more by surcharges on bills. That would have had a far smaller impact on the the government finances.
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