New UK prime minister Liz Truss has announced an estimated £150 billion plan to protect the British public from soaring energy prices for two years.
However, Truss’s plan would provide only six months’ cover for businesses.
The plan would limit average annual household bills to £2,500 over the next two years, avoiding the expected 80% increase that was due in October.
“We are supporting this country through this winter and next, and tackling the root causes of high prices so we are never in the same position again,” Truss told the UK parliament.
“This is the moment to be bold, we are facing a global energy crisis, and there are no cost-free options.”
Deutsche Bank has estimated that Truss’s energy price plan plus the tax cuts that she has promised could cost £179 billion — about half the sum the UK spent on the COVID-19 pandemic.
Some economists believe the plan is likely to add more than £100 billion to the UK’s borrowing.
Institute for Fiscal Studies (IFS) Director Paul Johnson said: “This is a huge policy intervention which could easily cost over £100 billion in the next year alone, with more to come in the following year.
“Given the scale of the package, the failure to provide any official sense of a costing was extraordinary, and deeply disappointing.”
The UK’s Debt Management Office will publish an estimate for the impact of the Truss plan on 2022-23 bond sales later this month when UK finance minister Kwasi Kwarteng delivers an emergency fiscal statement and estimates for what the plan will cost.
The debt of the UK government was £2.388 trillion at the end of July 2022 — an increase of £188.4 billion compared with July 2021 — according to the latest figures from the UK’s Office for National Statistics (ONS).
The size of the Truss plan, likely funded by more UK government borrowing, has rattled financial markets.
The UK pound fell against the dollar on Wednesday to levels last hit in 1985.
Victoria Scholar, Head of Investment, Interactive Investor, said: “It is expected that these measures could cost the government around £150 billion and will be funded by government borrowing.
“Liz Truss insists her energy support package will have a positive impact on inflation, reducing price levels by ‘up to five percentage points’.
“However the hundreds of billions of pounds in borrowing and spending, particularly when combined with her plans to cut taxes, could in fact add to price pressures in the economy.
“There is also criticism that this very expensive plan that arguably could have been better targeted towards those most in need.
“Her package provides indiscriminate support for everyone in England, Scotland and Wales regardless of income including those who are wealthy enough not to need any handouts.
“On a positive note, her plan is likely to support growth, potentially lessening the depths of the UK’s widely expected recession.
“However it comes at a cost of higher debt levels down the line.
“Today’s announcement has helped to moderately lift the pound off the lows after sterling slumped to the weakest level since 1985 this week yesterday.”