Britain on Wednesday launched a six-month plan from October to pay around half of businesses’ energy bills, as Prime Minister Liz Truss seeks to shut down companies sink due to soaring prices.
The news comes ahead of a mini-budget on Friday when Finance Minister Kwasi Kwarteng is expected to unveil tax cuts to help a nation that has struggled with high inflation for decades.
Wholesale electricity and gas prices for businesses – except the energy sector – as well as charities, hospitals and schools will be capped at half the expected free market cost , the government said in a statement.
The announcement comes after Truss launched plans for a two-year home energy price freeze which also begins next month.
“We stepped in to prevent businesses from collapsing, protect jobs and limit inflation,” Kwarteng said on Wednesday.
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The Chancellor of the Exchequer will outline the overall cost of the two energy freeze programs on Friday.
His budget will seek to boost economic growth amid forecasts that Britain will slide into recession this year due to sky-high energy bills fueled by the major oil and gas producer’s invasion of Ukraine, Russia.
– ‘Relieves worries’ –
The Confederation of British Industry (CBI) welcomed Wednesday’s announcement.
“The package will allay concerns about the closure of otherwise viable businesses,” said Matthew Fell, the lobby group’s senior policy director.
Meanwhile, the CBI has called for a long-term energy solution to boost supplies from Britain while boosting efficiency measures to reduce demand.
Truss took office on September 6, two days before the death of Queen Elizabeth II, after winning an election of Conservative Party members on a platform of tax cuts.
She has pledged to scrap planned tax hikes on corporate profits and wages that her predecessor Boris Johnson endorsed.
Media reports suggest the government will also remove an EU limit on bankers’ bonuses after Brexit.
On the London stock market, homebuilders saw their shares rebound on speculation that Truss could cut taxes levied on residential property purchases.
– Runoff economy –
Tax cut plans like those proposed by Truss have come under fire from US President Joe Biden, who has spoken out against the “trickle down economy” policy favored by Republican opponents to Democrats. .
The approach is based on the expectation that policies that immediately boost the wealthy will trickle down through the economy to reach the less well-off.
“I’m sick of the economic fallout. It never worked out,” Biden tweeted on Tuesday.
Speaking ahead of Biden’s tweet, Truss addressed this point.
“I don’t buy this argument that cutting taxes is somehow unfair,” she told Sky News earlier this week.
“What we do know is that people with higher incomes generally pay more taxes.
“So when you cut taxes, there’s often a disproportionate benefit because those people are paying more taxes in the first place,” she added.
The two leaders met on Wednesday at the UN in New York.
A day later, the Bank of England is expected to raise its main interest rate again in a bid to dampen soaring inflation.
Economists warn that the UK’s cost of living measures will wreak havoc on public finances already reeling from pandemic-related spending.
Analysts at UK bank Barclays estimate the cost of total government spending could reach £235bn ($267bn).
While official data on Wednesday showed UK government borrowing improved in August, it is expected to rise as the government funds planned tax cuts.
Public sector net borrowing, the state’s preferred measure of deficit, hit £11.8bn last month, the Office for National Statistics said.
This was down from £14.4billion a year earlier, but was well above its pre-pandemic 2019 level of £5.3billion.