The ever-awaited Energy package of Britain has finally been unveiled by the Prime Minister, who had been a vocal supporter of such a package and to many, the primary reason for her coming to power was this stance on energy the crisis. After, Putin’s invasion of Ukraine much of Europe has been hit hard by the rising cost of energy and the same has been the case in the UK as well where the projections of rising energy costs were forecasting a cold winter for many across the country. There are a number of bold decisions which form part of this Energy package but critics still hold deep reservations about the impact it is bound to have on the economy of Britain.
The focal point of the Energy package is the consumer, the government has fixed the energy bill of an average household in Britain to be £2500 per year for the next two years which was expected to rise to more than £3500 this October. In the next two years, this energy bill for an average household was expected to soar to more than £7000. The energy package also includes an additional £400 to be paid to every household in the UK from October-March as an energy rebate. Moreover, small businesses will also have their energy prices capped for 6 months, an initiative which holds far below the expectations of many across the nation especially keeping in mind the disastrous effects covid-19 had on businesses. The Truss administration regards this package as a huge initiative to help the poor but too many of these policies are quite short-lived and in the long run, this energy package may result in an unprecedented increase in inflation, high-interest rates and an energy crisis for years to come.
The source of funding for this energy package is still unclear, but there are possibilities that the government might be turning towards the IMF for a bailout to get those £150 bn for this ambitious policy. Notorious for forcing the developing countries to implement the desired economic policies, it is astonishing for many how the IMF has lately criticized the sixth largest economy of the world by mentioning that this mini-budget (of which the Energy package forms the major part) needs re-evaluation. The IMF further said that this mini-budget risked undermining the efforts of the Bank of England to tackle rampant inflation amidst the cost-of-living emergency. The pound has also plummeted to a record low against the dollar in the last four decades as market instability increased, especially after the IMF released its statement. The confidence of investors was seen at a low ebb, and the bank of England also came into action last week, buying bonds worth £65 bn to increase market stability. Perhaps, the 45p (45% tax for anyone earning more than £150k per year) tax cut was the most controversial aspect of this plan which the government announced initially that it would be scrapping but a huge public criticism focused on the fact that it will only help the rich, meant that the government had to take a U-turn on the matter. Not surprisingly, the pound was increased by a cent against the dollar after the government announced that the 45p tax plan will still be put in place.
Furthermore, as part of driving the UK free from the energy dependence of other countries, the government is set to launch a new round of licensing for oil and gas in order to increase production in the North Sea. To help the energy companies the government will be bringing in a combined scheme with the Bank of England to provide them with the necessary support required.
To conclude it seems that this energy package is not only unique in terms of the cost involved but some points seem highly implausible to put into action at a time when there are a lot of other geo-political challenges that this current government of the UK is facing. A crisis in the UK is an alarm for most economies in the world, if one of the giants of the developed world can face such an energy crisis then the world might be heading towards yet another economic recession which is forecasted by many experts around the globe.
Edited and Reviewed by Tanish Bagga.
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