On Friday, Britain’s energy regulator said the typical household gas and electricity bill would rise from 1,971 pounds ($2,308) this month to over 3,500 pounds in October – and forecasters are talking bills well over £6,000 by next spring. For many, these costs are totally unaffordable. Nearly 10 million Britons say they have skipped a meal or reduced portion sizes due to rising prices; some 6.7 million had to seek help from a food bank or charity.
War-related sanctions and tight energy supply are the main causes of this crisis. With around 80% of its homes dependent on gas for heating, Britain is highly exposed to rising prices even though it does not import much from Russia. Brexit also contributed to food price inflation, and the fall in the pound made matters worse. Meanwhile, taxes have risen to their highest level as a share of national income in decades, further compressing households.
None of this should cause Britain to withdraw its support for Ukraine or abandon its commitment to net zero carbon emissions. But whoever wins the Conservative Party leadership race (and thus the next prime minister) will need to deliver both short-term relief to taxpayers and longer-term reforms to boost energy security and secure growth.
An emergency budget should be the first thing to do. A support package approved in May was substantial, but it has since been overwhelmed by rising energy, food and other prices. To be sustainable, any new relief should target the most needy households, including retirees. To avoid perverse incentives, it should support revenues directly, rather than attempting to meddle further in energy prices.
The government will also have to accelerate contingency plans for a complete cut off from Russia this winter. This should include continued stress testing of industries that may need to reduce their energy consumption, further incentives for households to reduce consumption during peak demand periods, and a viable plan to restore utility facilities. gas storage that has recently (and wrongly) been removed.
To be effective, these measures must be combined with a longer-term strategy focused on energy security, decarbonization and economic growth. Britain has a net zero target, but little clarity on how it will get there. It needs wider investment in clean energy, including a plan to encourage the widespread installation of solar panels for power generation. It must reverse the low levels of investment in human capital and infrastructure that have held back growth. Rather than pandering to anti-immigrant sentiment, the next government must make a positive case for importing more workers to start businesses and fill jobs ranging from hospitality to nursing.
Likewise, while much of the leadership race has been spent debating small-scale tax reforms, such as postponing a corporate rate hike, a tougher conversation about why utilities are both costly and dysfunctional is long overdue.
Finally, responding to the cost of living crisis also means avoiding policies which, however politically attractive they may be, will ultimately prove to be counterproductive. Windfall taxes sound good, for example, but they signal to markets that the government may claw back profits, creating uncertainty and discouraging investment, while potentially subsidizing investments that would otherwise be economically unviable. .
Whatever happens, Britain will likely face a long, harsh winter. Without quick and careful action by the next Prime Minister, the outlook will be much worse.
More other writers at Bloomberg Opinion:
• The next European mission in Ukraine is on the home front: editorial
• Skyrocketing energy bills, meeting ridiculous NHS expectations: Thérèse Raphael
• UK’s next leader could be knee-deep in recession: editorial
The editors are members of the Bloomberg Opinion Editorial Board.
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