Photo Credit: Kirsty Wigglesworth
The United Kingdom declared that it intended to offer individuals and companies subsidies in order to help them deal with the skyrocketing cost of energy. The nation is following the lead of other European nations that have vowed to safeguard their economy in the wake of power system strain caused by reductions in Russian energy supplies.
Analysts estimate that the UK’s proposal might cost the nation £150 billion ($172 billion) or more. The proposed government subsidies in European countries like Austria and Germany, among others, totaled more than $500 billion.
Beginning in October, families will only be required to pay up to £2,500 ($2,880) each year for the next two years. Additionally, the initiative would provide adequate funding to businesses, nonprofits, and other government agencies so they can cover their energy expenses. The UK has adequate money to cover expenditures for these industries for up to six months. However, the term may extend in some circumstances.
“Because the program does not specifically target the most needy but is rather broad-based, it will be relatively expensive,” Berenberg bank analyst Salomon Fiedler 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.
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Support is needed by the country
Analysts believe that setting an energy price cap is the best course of action because recent months have witnessed a continuous rise in energy expenses for both families and companies. A household currently spends at least $2,263 or £1,971 on energy bills on average per year. This number represents an increase of 54% from the start of the year.
If not for the assistance, bills would have already climbed past the £3,500 cap. And the next year, this figure ought to rise. Many companies have already warned that, if current trends continue, most of them won’t be able to withstand the crisis. Thankfully, the government’s action helped stakeholders feel better.
“The price of inaction would have been far greater than the cost of this intervention,” finance minister Kwasi Kwarteng said.
During a parliamentary debate, Prime Minister Liz Truss declared that taxes on energy corporations will not be used to pay for the subsidies. Instead, money will be borrowed from the government. Investors, however, are leery of Truss’s plan since they believe that the UK’s massive borrowing would ultimately hurt the country.
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Government initiative might not be enough
According to a Brussels-based research group, the EU and UK have already spent close to $280 billion to help consumers cope with rapidly rising expenses. This includes the expenditures it made when the energy costs began to rise in September of last year.
The other portion of the EU and UK’s investment, though, was poured in this year as a result of Russia’s invasion of Ukraine. Prices for goods and commodities quickly rose after that.
Germany informed its citizens of a $65 billion subsidy to individuals and businesses to help offset rising energy costs. Austria has also planned to freeze power costs beginning in December 2022 and lasting through June 2024. The program would have a $4 billion price tag overall.
To address the energy issue, the UK and EU have already spent more than $500 billion in subsidies. However, because Russia has cut off its supply to Europe, experts argue that more needs to be done.
An urgent conference of energy ministers from the Union was organized to talk about issues relating to the energy crisis that is now plaguing most of Europe. The price ceiling on Russian gas, the connections between the costs of gas and power, and other potential solutions will be explored, among other things.
“We must cut Russia’s revenues, which Putin uses to finance this atrocious war against Ukraine,” said EU Commission President Ursula von der Leyen.
Source: CNN
