As nights get colder, our energy prices get higher. The government is taking action to ease a cold and dark British winter.
The Bank of England has now raised interest rates to the highest since 2008 in an attempt to curb double-digit inflation.
As the world recovers from lockdown and the worldwide economy suffers, energy bills are rising across every household. The amount energy firms pay for wholesale gas has steeply rocketed since October 2021, and the cost is being passed on to us as the end users. Some households are able to handle the price increase, but thousands will struggle to pay for heat and gas this winter if they are not already feeling the pinch.
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As a result, Liz Truss’ conservative government have put together the ‘Energy Bills Support Scheme’.
The energy plan: simplified
You will still pay for the gas and electricity you use, but the government’s Energy Price Guarantee will limit suppliers’ prices for each unit.From October, your annual bill won’t rise above £2,500. Without Truss’ energy plan, the average bill would be £3,549 compared to £1,277 last winter. This cap will last for two years.You won’t have to pay back the discount you get, but the difference between the government energy price guarantee and the energy company’s price is paid by the government. The government will borrow money from international markets, which will add to the national debt.Eligible households will still get cost-of-living payments this winter. There is also a £400 discount on bills for all homes over the winter.
The cap is a godsend for many homes this winter
The energy support plan is a huge intervention by the government but warranted by the scale of the crisis and the millions of people affected. There is no doubt that the new measure will put more money in people’s pockets. It should also help lower inflation and possibly reduce the depth of an incoming recession.
There are disadvantages we haven’t considered
Andy Mayer, at the Institute of Economic Affairs, dubbed it ‘middle-class welfare on steroids. It will mean future taxpayers are subsidising hot tubs, heating swimming pools and cooling wine cellars.’
Mayer’s viewpoint doesn’t consider the millions of people that would have to go without heating this winter without these measures. However, he is pointing toward a real gap in the government’s thinking with the Energy Support Scheme.
The energy cap encourages higher-income households to use as much power as they want this winter. In fact, The Energy Support Scheme will disproportionately benefit those who have always had high energy bills. As Mayer points out, higher energy bills may have put wealthy people off of heating their swimming pools this year. Unfortunately, they will pay the same amount as the households that desperately need it.
The economic fallout could be tremendous.
The scheme is projected to cost around 100 billion pounds ($116 billion), but the exact amount could be larger depending on its duration, wholesale energy prices and market demand.
The plan also relies on the government taking on the burden of rising energy costs, which would have a significant effect on the country’s economy in the future.
Decision makers need to take proactive steps to move towards greener energy
In Europe, Non-gas electricity producers like renewable energy or nuclear power benefit from the increase in the price of electricity. Policymakers in Brussels have considered taxing these companies to curb excessive profits.
However, many think this is short-sighted as it will send an unwelcome message to Europe’s green producers.
Instead, many believe decision-makers should do everything they can to wean Europe off fossil fuels and increase investment in sustainable technologies. Otherwise, the problem we are facing will only get worse.
Britain needs to enact significant structural changes to encourage a transition to green energy, reduce demand for fossil fuels and curb price hikes.