Price of war: UK and EU spend $500 billion on energy subsidies

Britain on Thursday confirmed plans to subsidize energy bills for homes and businesses, joining other European governments in an expensive race to protect their economies from freezing this winter as Russia cuts gas supplies. .

The UK plan could cost up to 150 billion pounds ($172 billion), analysts said.

Add that to similar recent announcements by Germany, Austria and other EU governments, and the region’s bill for attracting the sting of rising prices is already over €500 billion ($500 billion).

From October, the typical UK family will pay no more than £2,500 ($2,880) for their energy over the next two years.

The government will also support businesses, charities and public sector organizations with their energy costs over the next six months and possibly longer.

“Because the program doesn’t specifically target those most in need, but is quite broad, it will be relatively expensive,” said Salomon Fiedler, an analyst at Berenberg bank.

“The family support package could cost around £100bn (over 4% of UK GDP). Further measures for companies could take the total price to around £150bn,” he added.

The British desperately need support. Already, the average annual household energy bill has increased 54% this year to 1,971 pounds ($2,263).

Without the new plan to cap prices, the bills would have climbed above £3,500 in October and even higher early next year.

Companies faced even greater increases and many had warned that they would not survive the winter.

“The price of inaction would have been far greater than the cost of that intervention,” Finance Minister Kwasi Kwarteng said in a statement.

He is expected to reveal the cost later this month.

Announcing the measures in parliament, UK Prime Minister Liz Truss again ruled out imposing a new “windfall tax” on the huge profits of energy companies to pay for the measures.

Instead, your government will likely have to increase government borrowing to subsidize the bills.

Such a plan could scare off investors already worried that the country’s finances are on an unsustainable path.

The heavy borrowing could convince investors to ditch the pound, which has already fallen to its lowest level in 37 years, pushing up prices further.

A $500 billion intervention

Bruegel, a Brussels-based think tank, said last month that the European Union and the United Kingdom had already committed 280 billion euros ($280 billion) to protect consumers from eye-watering energy prices.

The analysis included spending commitments made between September 2021 – when global energy prices started to rise – and July this year.

They include steps taken to help with other cost-of-living pressures.

But most of the support has come since late February, when Russian President Vladimir Putin ordered the invasion of Ukraine, pushing up oil and natural gas prices, Giovanni Sgaravatti, a research analyst at Bruegel told the BBC. CNN Business .

On Sunday, the German government announced a €65 billion ($65 billion) package to help families and businesses cover their energy costs.

Austria announced on Wednesday that it would freeze electricity prices from December until June 2024.

Reuters reported that the plan would cost up to 4 billion euros ($4 billion)

Together, Europe and the UK have so far pledged to spend more than €500 billion ($500 billion) to subsidize accounts.

But governments know more needs to be done as their energy standoff with Russia heats up.

On Friday, EU energy ministers will hold an emergency meeting.

On the table will be a price ceiling on Russian natural gas, breaking the link between gas and electricity prices, and a mandatory target for countries to use less energy, among other measures.

“We must cut the revenues from Russia, which Putin uses to finance this atrocious war against Ukraine,” European Commission President Ursula von der Leyen told reporters on Wednesday.

— Mark Thompson, James Frater, Anna Chernova, and Eleanor Pickston contributed reporting.