U.K. PM Moves To Save Economy, To Announce Energy Bailout Funded By Borrowing, Rejects Further Taxes

Britain’s new Prime Minister Liz Truss said her government would unveil a major bailout package to help households and companies survive a surge in energy prices triggered by the war in Ukraine, but she ruled out any new windfall taxes on energy companies.

During her first appearance as prime minister in the House of Commons on Wednesday, Ms. Truss promised her government would help British households and businesses struggling with high inflation and skyrocketing energy costs by capping their bills and cutting taxes, which she said would stimulate a sluggish economy.

“The reality is this country will not be able to tax its way to growth,” she told lawmakers.

Ms. Truss, who took over from her fellow Conservative Boris Johnson this week, is expected on Thursday to announce a vast package to limit the amount energy companies can charge businesses and households.

The bailout, which officials estimate could exceed £100 billion, is aimed at preventing a sharp recession this fall when energy bills are expected to rise 80% in October when a cap on prices was due to increase.

Ms. Truss is trying to move fast to shore up an economy headed into the doldrums, analysts say.

 Inflation is at a 40-year high and wages are falling at their fastest pace in 20 years.

A recession is predicted in the coming months. She is now rushing to push through supply-side reforms, including cutting payroll taxes and scrapping a planned increase in corporation tax.

Britain’s Prime Minister Liz Truss promised to help households and businesses deal with soaring energy costs by capping bills and cutting taxes.

Battle lines were quickly drawn on Wednesday with the opposition Labour Party over how the British state would fund such a package, which comes after substantial government spending during the Covid-19 pandemic.

Opposition Labour Party leader Keir Starmer criticized Ms. Truss, a former foreign secretary under Mr. Johnson’s government, for not placing a windfall tax on energy companies that he said stood to make £170 billion in excess profits during the coming years, arguing that taxpayers would ultimately be left to foot the bills.

“Is she really telling us she’s going to leave these vast profits on the table and let working people foot the bill?” said Mr. Starmer.

The Labour Party has advocated a freeze on energy bills funded in part by a windfall tax on energy companies’ profits.

Liz Truss ruled out new windfall taxes on energy companies arguing that doing so would ‘put off companies from investing in the UK.’

Under Mr. Johnson, a government subsidy announced earlier this year to help poorer households with their bills was paid for by such a tax.

Instead, the prime minister argued that a growing economy would ensure the package is paid for.

She added that Mr. Starmer “doesn’t understand aspiration, doesn’t understand opportunity and doesn’t understand that people want to keep more of their money.”

 Part of the solution, she said, was to produce more energy in the U.K., in particular by getting more oil and gas from the North Sea and building more nuclear plants.

Yields on U.K. government debt are up to their highest levels since 2014 as investors become more nervous about the state of the nation’s finances. New Treasury chief, Kwasi Kwarteng, met with business leaders to reassure them of the government’s plans. The chancellor “was clear this will mean necessary higher borrowing in the short-term whilst ensuring monetary stability and fiscal discipline over the medium term,” the Treasury said in a statement. “He committed to ensuring the economy grows faster than our debts.”

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Details of the package will be presented tomorrow morning to Parliament.

In October, an existing U.K. price cap on energy will be recalibrated to reflect far higher market prices for natural gas. Absent government support, the average household bill would rise to around £3,500 a year for energy, equivalent to $4,000, compared with a current annual average of £1,900, according to a British regulator in charge of setting the cap. The new cap set to be announced Thursday, will likely keep costs at an average of £2,500 a year for households, according to people familiar with the government plan.

Ms. Truss faced questions from lawmakers for the first time as prime minister on Wednesday.
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Economists said a bailout would cushion a likely recession and help slow growing inflation.

During a meeting with lawmakers, Bank of England Gov. Andrew Bailey on Tuesday welcomed a forthcoming energy package, but said a recession was still “the most likely outcome,” and warned that inflation was becoming increasingly embedded in the economy as businesses raise their prices in anticipation of higher costs.

Analysts think that the Bank of England will have to continue to raise rates to tamp down inflation that the central bank projects will hit 13% by year-end.