Truss, Sunak Under Pressure to Clarify UK Energy Bills Support
Comment of the Day

August 26 2022

Commentary by Eoin Treacy

Truss, Sunak Under Pressure to Clarify UK Energy Bills Support

This article from Bloomberg may be of interest to subscribers. Here is a section:

With just 10 days to go until Boris Johnson’s successor as premier and Conservative Party leader is announced, neither candidate has detailed how much assistance they’ll provide to families and businesses who face soaring energy costs, despite Chancellor of the Exchequer Nadhim Zahawi conceding that the current support package is “not enough.”

Whichever candidate wins the Tory leadership contest, addressing the impact of rocketing energy bills will be at the top of their in-tray after Ofgem said on Friday that a price cap on average annual energy bills would rise to £3,549 ($4,206) in six weeks’ time. That’s 178% higher than last winter and 80% more than at present. 

Eoin Treacy's view

The only questions considered are how much support to provide. Fiscal discipline is out of favour at present. With inflation and energy prices hitting living standards so aggressively, the UK government is under extraordinary pressure to ease the pain.

With an election only a couple of months away, Denmark announced rent controls today. Spain introduced an electricity price cap in June. The USA’s efforts to provide student debt relief are in the same vein, and also aimed at providing an electoral fillip to the ruling party.

When market stability breaks down, governments tend to intervene to provide assistance to consumers.  Price and rent controls are preferrable to giving in to union wage demands. Controls can at least be cancelled. Wages are much stickier. It means we should expect a much more controlled market environment. That will sow the seeds for future inflation; to catch up when controls become too expensive and are abandoned.

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