January 27, 2023

Lakeview Gazette

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UK: Liz Truss’s U-turn on energy tariff | Freeze and Debt

Two days after taking office, new Prime Minister Liz Truss made a 180-degree change to gas and electricity tariffs. In a message to the House of Commons Dress It announced a moratorium on fare hikes for two years After the proposal was flatly rejected by Labor two weeks ago. “This government is going to offer a new guarantee on prices, which will protect the population and reduce inflation,” Truss told parliament.

As of October 1st, the ceiling on electricity costs will now be £2,500 a year, up from almost £2,000 ($2,300) to £3,549 a year (about $288 a month). As an additional and separate measure, the Government will provide assistance of around £400 This would, in practice, leave the benefit sectors, which are still not precisely defined, at the same rate ceiling as is now in place.

The cost of the move will exceed £100 billion at a time when British public debt continues to rise. (40% of GDP with Dave Cameron (2016), 60% pre-pandemic, more than 90% today). However, millions of people will fall into energy poverty (paying more than 10% of their income for electricity and gas) and absolute poverty (poverty) and thousands of companies will go bankrupt.

Who pays?

In mid-August Labor proposed a rate freeze which was rejected by Liz Truss He campaigned to convince the Conservative Party that he was the successor the country needed. In this, although the Truce freeze is less than what Labor leader Sir Keir Starmer proposed, the turnaround is spectacular and in full view of the world. The big difference between the two is who is going to finance this aid package.

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In the new prime minister’s version, it would be financed with general taxes, i.e. debt paid by all taxpayers. The Labor leader is instead proposing a special income tax on energy companies that have made huge profits since the war in Ukraine. “The Prime Minister knows he has no choice but to come out with an aid package, but it comes at a cost, and that is the real question, who is going to pay for it? The same Treasury estimates that energy companies will make £170 billion in special profits over the next two years. These companies will get special rents from this special rent. He’s going to let them continue to get rich, and let workers pick up a tab on wages for decades,” Starmer said.

They pointed out at the Independent Institute of Financial Studies The bailout benefited the rich more than the population as a whole, adding a burden to the already expensive public debt for a government facing crises on multiple fronts. According to one estimate, the current increase in energy prices has added to the spiral of inflation, forcing thousands of small and medium enterprises into bankruptcy. Luis Costello, owner of a small local bakery chain in the north of the country, told “The Independent” it was “too late”. The company had to close three businesses after electricity bills rose 438% from £19,500 to £105,000 a year. “We have been waiting for help from the government for months. It’s too late for me and a lot of businesses,” Costello told the newspaper.

The ultra-neoliberal right, which had until now unreservedly supported Truss, also criticized the aid. “It would be better to attack this problem by decentralizing social welfare and reducing the tax burden, because the package would cost between £90 and £170 billion. Price controls don’t work. Eliminating that key signal, called price and subsidy, uses energy inefficiently, perpetuates the crisis and discourages investment,” said Andy Mayer, an analyst at the Institute for Economic Affairs.

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Drop the pounds

Unlike other times when the arrival of the Conservatives was welcomed by the markets, this time there was a significant fall in the value of the pound. It fell to its lowest level against the dollar since 1985.

The 180-degree tax hike, a mantra chanted by the Conservatives since the 1980s, did not extend to the Truce’s other economic plans.: Reduce taxes to increase investment and have a trickle down effect on the rest of society. None of this has happened: the UK is the least invested country among its G7 peers and inequality and absolute poverty have grown under the last 12 years of Conservative government.

The Truss’ proposed £27bn tax cut will mostly benefit corporations and wealthy households. Truss companies will scrap a 25 percent tax hike that was due to take effect from April 19, the first increase in 47 years. The increase in Social Security, which has been in place since April this year, will be phased out for the entire population, with the richest 5% benefiting more than those on lower incomes, according to the Resolution Foundation. “Low-income British households are today 22% poorer than their counterparts in France and 21% poorer than in Germany,” notes the Resolution Foundation.

Critics abound, along with economists and the establishment media. “Truss has five economic hurricanes: energy bills, inflation, recession, rising interest rates and a falling pound. The population’s priority is public services, the National Health Service. Even among many Conservative voters there is no preference for a laissez-faire agenda. They want lower taxes, but they They don’t want benefits for the rich. They want government intervention to improve public services, fight rising living costs, improve regional and social conditions. They want higher wages and they don’t want deregulation of the labor market. This agenda is going to force Truss’s hand.” That is predicted by Robert Schrimsley in the “Financial Times”.

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In short, Making other 180-degree turns as alternatives to Truss, which she doesn’t seem to like very much at the moment, or succumbing to a crisis beyond her strength, goes against the political instinct of survival.. In the 80s, her model, Margaret Thatcher, responded to criticism she received about her radical agenda by saying, “There’s no going back on womanhood.” Times have changed: Liz Truss has no room for such indecisiveness. Either rotates or sinks.