Photo Credit: Kirsty Wigglesworth
The United Kingdom stated its intent to provide subsidies to consumers and businesses in order to assist them in dealing with the growing cost of energy. The country is following in the footsteps of other European countries that have sworn to protect their economies in the aftermath of the power system strain caused by Russian energy supply restrictions.
Estimates suggest that the UK’s proposal will cost the country £150 billion, or $172 billion. The proposed government incentives in European countries, including Austria and Germany, totaled more than $500 billion.
The scheme will begin in October, with households paying no more than £2,500 ($2,880) for the next two years. The initiative will also provide sufficient funding to enterprises, charities, and other public groups in order for them to keep up with rising energy expenses. The UK has enough finances to cover expenditures for up to six months in these industries. However, depending on the circumstances, the duration may be extended.
“Because the program does not specifically target the most needy but is rather broad-based, it will be relatively expensive,” said a bank analyst from Berenberg, Salomon Fiedler.
“The support package for households may cost around £100 billion (over 4% of UK GDP). Further measures for businesses may take the total price tag to around £150 billion,” he added.
Countries needed funding from the government
Analysts believe that capping energy prices is the right move, as individuals and companies have experienced consistent increases in energy expenses in recent months. A household currently pays an average of £1,971 or at least $2,263 for energy bills. This statistic has increased by 54% from the beginning of the year.
If the assistance did not exist, bills would have already risen past the £3,500 level. This figure is expected to rise in the coming year. Many companies have previously warned that if current conditions endure, the majority of them will fail. Fortunately, the government’s involvement calmed the atmosphere of stakeholders.
“The price of inaction would have been far greater than the cost of this intervention,” finance minister Kwasi Kwarteng stated.
During a parliamentary session, Prime Minister Liz Truss stated that no taxes will be levied on energy firms to fund the subsidies. Instead, the government will borrow money. However, investors are doubtful of Truss’ proposal, claiming that massive borrowing will only harm the UK in the long term.
The proposal might be insufficient
According to a Brussels-based research organization, the EU and the UK have already spent about $280 billion to assist customers in keeping up with high costs. This includes the expenditures spent in September of last year when energy costs started to go up.
The other half of the EU and UK investment, however, was poured in this year when Russia attacked Ukraine. As a result, the costs of goods and commodities surged.
Meanwhile, Germany notified its citizens of a $65 billion subsidy for individuals and businesses to cover expanding energy bills. Austria has also resolved to freeze power costs from December 2022 to June 2024. The plan would have a total cost of $4 billion.
To summarize, the UK and EU have already funded more than $500 billion in response to the energy problem. However, analysts believe that more needs to be done, especially after Russia cut off its supply to Europe a few weeks ago.
Union energy ministers convened in an emergency meeting to examine the energy crisis that is ailing most of Europe. The price cap on Russian gas, links between gas and power costs, and additional actions to be implemented are among the topics to be considered.
“We must cut Russia’s revenues, which Putin uses to finance this atrocious war against Ukraine,” EU Commission President Ursula von der Leyen added.