Government to borrow £70bn to fund massive energy support scheme
The UK government has presented its new ‘mini-budget’, characterised by billions of pounds of increased spending to support households with energy bills and lower taxes.
Newly appointed chancellor Kwasi Kwarteng has pledged to “turn the vicious cycle of stagnation into a virtuous cycle of growth” as he set out the government’s approach to the UK economy.
The new schemes have been announced as part of the Chancellor's mini-budget, officially known as a “fiscal event”. They have provided details of how the government plans to fund the energy price cap for households and businesses and put into practice many of Prime Minister Liz Truss’s promises.
Under the presented plan, the government is expected to borrow an extra £70bn over the coming months to fund its massive energy bills support for households and businesses.
The combined energy schemes will cost around £60bn over the first six months, the Chancellor announced on Friday, while the business relief package will cost around £29bn over the same period. Meanwhile, the freezing of bills at £2,500 for the average household is expected to cost £31bn, according to the latest projections. However, the chancellor has warned of the uncertainty that surrounds these projections.
“The House should note that the estimated costs of our energy plans are particularly uncertain, given volatile energy prices,” Kwarteng told MPs on Friday. “We expect the cost to come down as we negotiate new, long-term energy contracts with suppliers.”
The plan also included new measures to speed up around 100 major infrastructure projects, including new roads, railways and energy projects, which will be achieved by watering down environmental assessments and other regulations. The new legislation will cut barriers and restrictions, making it quicker to plan and build new roads and renewable energy stations.
For example, rules that were put in place in 2015 have effectively stopped the construction of any onshore wind farms in the UK since then, as developers were forced to address all local concerns about a potential wind farm.
“No new substantive onshore wind farm has received planning consent since 2015,” the government said on Friday. Reforms to the rules will bring “onshore wind planning policy in line with other infrastructure to allow it to be deployed more easily in England”, it added.
Overall, banking and investment firms have welcomed the announcements, while some unions have criticised the government's policies and environmentalists have opposed measures such as the lifting of the fracking ban.
Tony Danker, CBI director-general, has described it as a turning point for the economy, saying: “Today is day one of a new UK growth approach. Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue.”
The Enterprise Investment Scheme Association (EISA) has welcomed the announcement by the Chancellor that the Enterprise Investment Scheme (EIS) is to be extended beyond the current 2025 deadline, and that limits on investments in the Seed Enterprise Investment Scheme (SEIS) are to be raised.
Christiana Stewart-Lockhart, director general of the EISA, said: “The announcement from the Chancellor this morning is excellent news for entrepreneurs. The EIS is crucial to helping some of the country’s most promising start-ups secure much-needed investment to grow, contributing both to employment and to the country’s economic wellbeing. It is fantastic to see the Chancellor’s commitment to make this a nation of entrepreneurs. His announcements today clearly outline that the government sees entrepreneurs playing a central role in the UK’s economic recovery.”
However, others are less impressed with the chancellor's announcements. Unison general secretary Christina McAnea said: “The government has ditched levelling-up for an all-out offensive to make the wealthiest even richer. In the middle of a huge cost-of-living crisis, this isn’t the time for economic experiments that are doomed to fail.”
One of the main points of contention has been the absence of measures to cut fuel duty. Howard Cox of FairFuelUK said the decision was "very disappointing" for both the UK's 37 million drivers and the logistics industry.
"Liz Truss and Kwasi Kwarteng should hang their fiscal heads in shame by not cutting fuel duty. Frankly, this is the economics of an asylum," Cox added. "Their ignorance is jaw-dropping!"
Speaking about this topic, Kwarteng said: “We have looked at [cutting fuel duty] in the past. It was not without controversy, but I’d be very happy to hear his ideas on this subject.”
The National Franchised Dealers Association (NFDA) said the support given to homeowners and businesses alike under the proposed budget is "encouraging", while warning of future challenges.
“Whilst six months of government support to combat the energy crisis is invaluable to our members, NFDA is concerned that energy prices will remain at this unsustainable level beyond this six-month support period. Therefore, we urge government to consider extending their support to a year, offering the energy market time to stabilise,” it said.
The UK is already dealing with a deepening cost-of-living crisis, with inflation hitting historic levels and predicted to enter double-digit figures. The rising prices of energy bills - prompted by the Russian invasion of Ukraine - are the main catalyst for this situation, which could leave as many as 40 per cent of British families facing fuel poverty in the winter.
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