Tackling the cost of living crisis that has hit the UK will undoubtedly be the number one issue on the minds of Brits as new Prime Minister Liz Truss begins her tenure.
Following her victory against fellow Conservative, Rishi Sunak, a large part of Truss’ campaign pledged to alleviate concerns held by Brits across the country, including energy bills, the prospect of increased income taxes and the potential recession as we depart from the Covid-era.
Truss’ attempts to reassure the British public that recession is not inevitable ultimately need to be backed-up with significant and suitable action. With the annual rate of inflation running at more than 10%, consumer spending, the main engine of the UK economy, is slowing down while a growing number of firms worry their costs will force them out of business,
Sunday 11th September saw Truss release her plan to help Brits with rising energy costs. The government’s energy price guarantee will limit the price that suppliers can charge for each unit of energy.
A typical household in the UK uses 12,000 kWh of gas and 2,900 kWh of electricity per year. With the new energy price guarantee, your annual bill will not rise above £2,500 from October. Without this intervention, that annual bill would have been £3,549 a year. Last winter it was £1,277 a year.
Obviously this is not a set figure and if you find that your household is more energy-efficient, you will end up paying less on energy bills, however, this plan undoubtedly benefits those living in larger houses who can rely upon the fact that they won’t pay a penny over £2,500 per year, no matter how much energy they use around the home.
Truss has taken the helm at a very tricky time to economically-navigate.
Truss has inherited a faltering economy as a result of the pandemic, inflation at a 40-year high and pressure to protect households and businesses from soaring energy prices.
Of all the issues Truss inherits, energy prices are viewed by many as the most difficult to tackle.
There has been a huge spike in global energy prices, initially triggered by the reopening of the economy after the pandemic and then exacerbated by the conflict in Ukraine.
“We are finding that more and more of our customers are borrowing to help pay-off their household bills such as energy and electricity, rather than medical or car repair bills which used to be the norm”, commented Ben Sweiry, co-founder of FinTech startup, Dime Alley.
Ultimately, Truss’ solution to the cost of living crisis may help to slightly alleviate the cost of living crisis in the short-term, but the question remains, aren’t we going to have to pay it all back?
Well, the answer is complicated. We won’t directly need to pay it back, but the pledge to borrow £500 billion to tackle the energy crisis will only add to the budget deficit that the UK has accumulated through the pandemic years. Whilst it may be relieving to know that we will be getting some help in this crisis, the future generations will certainly be the ones to take the burden.