Brits Win, Energy Companies Win Bigger

Image source: Damian Czajka, Alexandros Michailid - Shutterstock

What's going on?

The UK’s new prime minister drafted plans this week to help Brits with mounting energy bills.

What does this mean?

The UK energy price cap – which limits how much suppliers can charge their cash-strapped customers – is due to jump 80% in October. At least the prime minister – newly appointed on Tuesday – was quick to draft plans that fix the typical British household’s annual energy bills around the current level of £1,970 ($2,300), effectively doing away with the existing price regime. Energy suppliers would charge households a reduced rate instead, with the government paying the difference between their new income and what they’d have made before – a move estimated to cost £130 billion ($150 billion) over just 18 months. And since that also means energy companies can skirt the once-touted windfall taxes on their massive profits, you’d be forgiven for forgetting everyday Brits were the intended winners here.

Why should I care?

The bigger picture: We can’t have anything nice.
The idyllic plan has some serious downsides. For one, the government’s likely to borrow the cash to fund the plan, adding to its £2.3 trillion ($2.7 trillion) of national debt – the cost of which is only increasing with interest rates. And for another, analysts believe some shifty energy sellers could hike their prices for suppliers because they know the government will have to pay, increasing costs even more as a result. That’ll be why some economists doubt the grand plan can be sustained beyond winter, and believe it could all end up in higher taxes in the long term to pay it all off.

For markets: Show me the money.
Businesses can hardly wait: the plan should fatten up customers’ wallets, meaning they’re more able to splash the cash during the money-making holiday shopping season. So maybe that’s why the UK’s FTSE 250 index rose 2% after the news, with domestically-focused retailers like Marks & Spencer and Greggs notching 5% and 7% jumps respectively.

Originally posted as part of the Finimize daily email.

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