Truss used her visit to the General Assembly of the United Nations (UN) to announce what appeared to be a radical change in economic policy.
(Photo: Reuters)
London The contradiction between words and deeds could hardly be greater: On the one hand, the new British Prime Minister Liz Truss announces a new “Thatcher revolution” from New York with low taxes, deregulated markets and a trimmed state. Meanwhile, at home in London, her Minister for Economic Affairs, Jacob Rees-Mogg, is explaining the details of a price cap on the energy market. This represents one of the largest state interventions that Britain has ever seen.
Truss used her visit to the United Nations (UN) General Assembly to announce what appeared to be a radical change in economic policy: “We want people to be able to keep more of the money they earn because we believe that freedom comes before instructions,” says the text of her speech, which she intends to give to the UN General Assembly on Wednesday evening.
The conservative head of government had previously defended the massive tax breaks planned by her government for companies and higher earners in several interviews.
“Lower taxes lead to economic growth, I have no doubt about that,” Truss said, taking the same supply-side stance that former British Prime Minister Margaret Thatcher and ex-US President Ronald Reagan had pursued decades before her.
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Truss was told by incumbent US President Joe Biden that not everyone considered the economic policy known under the brands “Thatcher Revolution” and “Reagonmics” to be a success: “I’m fed up with the trickle-down economy. It has never worked”Biden tweeted, referring to the hope that tax breaks for the wealthy and corporations will boost growth, thereby increasing prosperity for all.
State intervention in British energy markets
The disagreement with Biden, who also made it clear to Truss at the joint meeting in New York on Wednesday that there will be no bilateral trade agreement between the United States and Great Britain in the foreseeable future, is not the only discrepancy in the British Prime Minister’s economic restart.
Irrespective of its economically liberal theses, Truss itself announced massive state intervention in the British energy markets two weeks ago, the details of which were explained by Economics Minister Rees-Mogg on Wednesday.
Specifically, it is about a state cap for the costs of electricity and gas, which should help both private households and companies to better cope with the sharp rise in energy prices.
While electricity and gas bills for consumers are to be frozen at a ceiling of £2,500 (€2,865) for two years from October 1, companies in the UK will initially only be relieved for six months.
Accordingly, the wholesale prices that energy suppliers can demand from their corporate customers are to be capped at £211 per megawatt hour for electricity and £75 per megawatt hour for gas for six months.
According to the government, that would be a government rebate of up to 50 percent off prices expected next winter. In addition, the price surcharge to support renewable energies is to be suspended.
The total consumer and business support package is estimated to cost £150 billion.
(Photo: dpa)
Rees-Mogg said: “Combined with the actions we are taking to increase domestic energy production and thereby improve energy security and supply, this will boost growth, protect jobs and lower the cost of living for families this winter.”
However, the energy providers should retain a small amount of leeway when negotiating long-term supply contracts with their corporate customers so as not to completely stifle competition on the energy markets through the state price cap.
The emergency budget should disclose the financing of state aid
The cost of the whole bailout package for consumers and businesses is estimated at £150bn, but will depend on how much government-controlled prices differ from actual market prices. The government pays the energy suppliers the difference.
The new government in London wants to finance the massive energy aid through additional borrowing. Finance Minister Kwasi Kwarteng will explain the details of this and the other planned tax cuts in an emergency budget on Friday.
Truss has hinted she wants to help UK pub owners.
(Photo: dpa)
After six months, the Ministry of Economic Affairs then wants to examine which sectors and companies can also count on state aid. Truss has already indicated that she has her eye on British pubs in particular. “I can assure pub owners that they are exactly the type of company that will receive this longer-term support,” the Prime Minister said in an interview. Michael Kill of the Night Time Industries Association recently warned that seven out of ten pubs could go bankrupt without government help.
More: Liz Truss is planning the largest state intervention in the energy markets to date