The new British Prime Minister in Question Time in the House of Commons.
(Photo: AP)
London The new UK government will not introduce any more windfall taxex on energy companies. This was announced by Prime Minister Liz Truss during her first question time in Parliament. “I am against a windfall tax because it slows down corporate investment,” said the head of government.
At the same time, she announced that her government would make greater use of fossil fuels such as oil and gas in the North Sea and expand nuclear power. However, the special tax of 25 percent on the profits of oil and gas producers that was introduced in May is to be retained.
Truss will unveil her plan on Thursday to ease the economic and social hardships of soaring energy prices in the UK. The government is reportedly planning to freeze the average UK household’s annual electricity and gas bills at around £2,500 for the next 18 months.
Energy costs should actually increase by 80 percent to just under 3,600 pounds by October 1st. The costs of gas and electricity are regulated in Great Britain by a price cap and adjusted quarterly to the market situation.
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Despite presenting herself in Parliament as a supporter of free markets and low taxes, and having a loyal cabinet of arch-conservative market liberals around her, Truss is planning the biggest government intervention in Britain’s energy market ever.
There should also be relief for distressed companies. According to the financial information service Bloomberg, the new government is working on a package worth around £70 billion.
Together with household aid, the relief could add up to more than £170 billion. If energy prices continue to rise, government aid could even exceed the £200 billion mark, according to energy experts.
Interest burden is likely to increase significantly
It is unclear how Truss will cover the enormous financial needs and at the same time reduce taxes as she promised. Since it has ruled out further excess profit taxes, observers in London assume that the government wants to close the financial gap with additional debt.
But the risks of a bailout are significant with government debt at £2.3 trillion, as Paul Johnson, director of the Institute for Fiscal Studies (IFS), explains: “The government is already paying 3% interest on new loans. He expects the interest burden to rise from around £40bn to around £100bn in the current financial year and next.
Opposition leader Keir Starmer immediately attacked the political Achilles’ heel of Truss’ plans: “Does the government really want to leave energy company profits of £170 billion untouched and shoulder the burden on taxpayers?” asked the Labor politician.
Truss’ new finance minister, Kwasi Kwarteng, has to work out how the government can get out of the financial and political dilemma. The 47-year-old has already announced that in the face of the energy crisis he has no choice but to “relax the fiscal reins” and take on new debt to do so. That could put the Chancellor of the Exchequer on a collision course with the Bank of England, as the central bankers are trying to get the escalating inflation rate of ten percent under control.
Britain’s new Chancellor of the Exchequer faces a fiscal challenge.
(Photo: Reuters)
Former Economics Minister Kwarteng is the most important person in Truss’s new cabinet. The economic historian, who was trained at the elite universities of Cambridge and Harvard, advocated free markets, a lean state and deregulation together with Truss and other market liberals in the pamphlet “Britannia Unchained” back in 2012.
The new Foreign Secretary is James Cleverly, who supports Brexit. The 53-year-old is forgiving in tone, but tough on the matter. He is likely to continue Truss’ confrontational course towards the EU, even if, according to Northern Ireland Minister Chris Heaton-Harris, the new government is initially reluctant to escalate the dispute over the Northern Ireland Protocol and continues to hope for a negotiated solution.
This is how the Handelsblatt reports on Liz Truss and the change of government:
From the far right of the Tories comes the new Secretary of Commerce, Jacob Rees-Mogg. He was also given the energy portfolio, raising doubts about how seriously Truss will take climate targets. Rees-Mogg has warned against “climate alarmism” and blamed the climate targets, which envisage climate neutrality by 2050, for the high energy prices. Like Truss, he relies on fossil fuels, nuclear power and fracking.
Also on the right wing of the Conservatives is the new Interior Secretary Suella Braverman, at 42 the youngest member of the cabinet. The politician has announced that she will maintain the controversial deportations of refugees to Rwanda. In order to enforce her tough immigration policy, the lawyer wants to free Great Britain from the case law of the European Court of Human Rights if necessary.
More: Who is Liz Truss? What challenges the new prime minister is facing