Britain’s new leader Liz Truss finalizes huge electricity subsidy plan

LONDON, Sept 7 (Reuters) – Britain’s new Prime Minister Liz Truss on Wednesday prepared the final details of a plan to tackle soaring energy bills, which is expected to curb inflation but add more than 100 billion pounds (115 billion dollars) to the borrowings of the country. .

On her first full day as British leader after replacing Boris Johnson, Truss told parliament she would support businesses and households as they prepare for a recession set to begin later this year.

The pound has fallen to its lowest level against the US dollar since 1985, in part due to investor concerns over the scale of the debt Britain will have to sell to fund the energy support plan and cuts taxes that Truss has also promised.

A source close to the situation told Reuters that Truss is considering freezing energy bills in a plan that could cost up to £100billion, a major reversal from his rejection of ‘handouts’ at the start of the Conservative Party leadership campaign.

Deutsche Bank said energy price support and promised tax cuts could cost £179billion, around half of Britain’s historic pandemic spending surge that has dealt a blow to the country’s public finances .

Truss rejected demands from the opposition Labor Party to fund part of the spending by raising taxes on energy companies.

“I’m against a windfall tax. I think it’s a bad thing to discourage companies from investing in the UK,” Truss told lawmakers.

She must detail the energy support plan to Parliament on Thursday.

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His finance minister, Kwasi Kwarteng, also on his first full day on the job, said borrowing would be higher in the short term to support households and businesses and fund tax cuts. Read more

“We need to be decisive and do things differently. That means relentlessly focusing on how we unlock business investment and grow the size of the UK economy, rather than how we redistribute what’s left,” he told business leaders.

The pound fell to its lowest level against the dollar since 1985 at $1.1407 and also lost nearly 1% against the euro.

While the fall in the pound could add to inflationary pressures in the economy, the planned price freeze plan should help ease the cost of living pressure on consumers, which was shaping up to be the most severe in decades. decades.

BoE chief economist Huw Pill said the plan could slow inflation – which topped single digits in July – although it was too early to say what the implications would be for the series of price hikes. central bank interest rate. Read more

The BoE forecast in August that inflation would exceed 13%, and some economists have recently said it could exceed 20% if gas prices – pushed up by the Russian invasion of Ukraine – remain high.

Pill also said the BoE would not allow soaring government spending to fuel demand in the economy to the point of driving up inflation.

Nonetheless, investors reduced their bets on a 75 basis point rate hike in the BoE’s next scheduled monetary policy announcement on September 15 to 60% from nearly 80% earlier on Wednesday. Yields on two-year UK government bonds also fell.

Kwarteng met with BoE Governor Andrew Bailey and told him that “independence is really the cornerstone of how we run the economy”, comments that appeared to be aimed at reassuring investors that the new government would not put pressure on the central bank.

At the start of the Conservative Party leadership campaign, Truss said the government should set a “clear direction” for monetary policy, although she later adopted a less interventionist tone.

Kwarteng said he and Bailey would meet regularly, initially twice a week, to coordinate economic support.

($1 = 0.8721 pounds)

Additional reporting by the UK office Writing by William Schomberg Editing by Hugh Lawson

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