Photo Credit: Kirsty Wigglesworth
In order to help people and businesses cope with the growing cost of energy, the United Kingdom said that it intended to provide subsidies to several stakeholders. In addition, the country has pledged to protect its economy in the aftermath of power system stress brought on by a decline in Russian energy supply, following the example of other European countries.
Analysts estimate that the UK’s proposal will cost the nation £150 billion ($172 billion). The anticipated government subsidies totaled more than $500 billion across European countries, including Austria and Germany.
Households will only have to pay a maximum of £2,500 ($2,880) each year for the next two years under the proposal, which will launch in October. Helping businesses, nonprofits, and other government agencies cover their energy expenditures; the initiative will also provide them with a sizeable amount of funding. The UK has sufficient finances to cover these industries’ expenses for up to six months. The time frame, however, may 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, an analyst from Berenberg bank, 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 government funding
Energy costs have been steadily rising for consumers and companies over the past few months; therefore, economists think capping energy prices is the right move. A household spends at least $2,263 or £1,971 on energy bills yearly. Since the year’s commencement, this number has increased by 54%.
If the subsidies did not exist, bills would already be far in excess of the £3,500 cap. And this figure may need to rise the next year. Numerous companies have already issued warnings that, if the current condition persists, the majority of them won’t be able to weather the crisis. Fortunately, the government’s involvement lowered tensions among interested parties.
“The price of inaction would have been far greater than the cost of this intervention,” stated finance minister Kwasi Kwarteng.
During a deliberation, Liz Truss, the prime minister, stated that taxes on energy corporations would not be imposed to pay for the assistance. The UK will use borrowing from the government instead. Investors, on the other hand, are wary of Truss’s proposal because they believe that the UK’s massive borrowing would ultimately be detrimental.
More is needed to cope with the crisis
Almost $280 billion has already been spent by the EU and the UK, according to a Brussels-based research group, to help consumers keep up with their soaring expenses. Included in this are the expenses it racked up in September of last year when the energy price spike began.
Russia’s invasion of Ukraine, however, caused the EU and UK to invest their remaining funds this year. Following it, commodities and product prices sharply rose.
As a consequence of rising energy prices, Germany informed its citizens of a $65 billion subsidy to homes and businesses. Additionally, Austria has committed to freeze power costs beginning in December 2022 and continuing until June 2024. A $4 billion price tag would be associated with the effort.
The UK and EU have already financed more than $500 billion to combat the energy issue to put this expenditure together. However, in light of Russia’s recent cutoff of its supplies to Europe, analysts think more has to be done.
The Union’s energy ministers got together in haste to talk about the energy crisis that is now gripping parts of Europe. The price ceiling on Russian gas, the connections between the costs of gas and power, and other potential actions are among the topics that will be covered.
“We must cut Russia’s revenues, which Putin uses to finance this atrocious war against Ukraine,” stated EU Commission President Ursula von der Leyen.
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