Photo Credit: Kirsty Wigglesworth
The UK said that it would provide subsidies to people and businesses to assist them in coping with the soaring cost of electricity. The country is following other European countries’ example by promising to protect their economies in the aftermath of power system stress brought on by a decline in the Russian energy supply.
The UK’s proposed strategy might cost the nation £150 billion ($172 billion), according to economists. The total planned government subsidies in European countries, including Austria and Germany, exceeded $500 billion.
Households will only be required to pay up to £2,500 ($2,880) a year for the first two years of the scheme, which will begin in October. Additionally, the initiative will provide businesses, nonprofits, and other government agencies with sufficient funding to cover their electricity costs. The UK has adequate money to cover expenditures for up to six months in these industries. The term may, however, extend under certain circumstances.
“Because the program does not specifically target the most needy but is rather broad-based, it will be relatively expensive,” Salomon Fiedler, a bank analyst from Berenberg, said.
“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.
The EU needs the funding
Analysts contend that capping energy prices is the most effective strategy because expenses for individuals and companies have risen steadily in recent months. Currently, a household already spends at least $2,263 or £1,971 on energy bills. However, since the start of the year, this number has increased by 54%.
If the subsidies did not exist, bills would already have gone past the £3,500 cap. Next year, this figure might need to rise. Most firms have already warned that they won’t be able to withstand the crisis if the current circumstances persist. Luckily, the government’s action helped to lift stakeholders’ spirits.
“The price of inaction would have been far greater than the cost of this intervention,” said finance minister Kwasi Kwarteng.
Prime Minister Liz Truss declared during a parliament session that there will be no taxation on energy firms to pay for the assistance. Instead, money borrowed by the government will be used. Investors, however, are skeptical of Truss’s plan since they believe that the UK would ultimately suffer as a result of its massive borrowing.
More needs to be done
According to a think group in Brussels, the EU and the UK have already spent nearly $280 billion to aid consumers to cope with soaring costs. Included are the costs incurred when the energy prices began to rise in September of last year.
When Russia attacked Ukraine this year, the EU and UK invested the remaining portion of their commitment. Prices for goods and commodities then sharply climbed.
Germany informed its citizens that it would be providing homes and businesses with a $65 billion subsidy to help alleviate growing energy costs. The energy price in Austria will similarly be frozen beginning in December 2022 and lasting through June 2024. The initiative’s entire expense would be $4 billion.
In total, the UK and EU have already spent more than $500 billion on subsidies to address the energy crisis. However, experts assert that additional action is required since Russia recently cut off its supply to Europe.
To tackle issues connected to the energy crisis that is presently afflicting most of Europe, energy ministers from the Union met in an emergency session. The price ceiling on Russian gas, the connections between gas and power costs, and further steps to be implemented are among the topics that will be discussed.
“We must cut Russia’s revenues, which Putin uses to finance this atrocious war against Ukraine,” stated Ursula von der Leyen, EU Commission President.
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