Liz Truss received a huge boost to her energy bailout plans, after new forecasts predicted the cost to the Treasury might only be half of what was originally calculated. The new Prime Minister and her Chancellor Kwasi Kwarteng acted decisively to ease the burden of rising energy costs on UK consumers. The Government announced it would freeze energy bills at £2,500 a year for two years in a bid to protect all households from soaring gas and electricity prices.
Number 10 also pledged to discount gas and electricity unit prices for businesses for an initial six-month period starting from October 1st.
Government officials calculated the cost to the Treasury at £60 billion.
However, the Centre for Economics and Business Research (CEBR), believes these calculations are too pessimistic.
The economic consultancy said the energy support bill was likely to cost £30 billion rather than £60 billion.
The CEBR based its calculations on a forecast recently produced by Goldman Sachs.
The analysts at the investment bank predicted that wholesale energy prices would drop to €100 per MWh this winter from a current level that is closer to €200.
The Chancellor created a financial storm after unveiling his mini-budget last week.
Mr Kwarteng announced a £45 billion package of debt-funded tax cuts, which produced a fierce backlash from markets and voters alike.
His plans triggered an unprecedented slump in the value of sterling and UK bonds.
The CEBR, though, said the £45 billion price tag was a “gross exaggeration” and the real cost of the tax cuts was likely to be £25 billion.
Doug McWilliams, deputy chairman at the CEBR, said: “If our calculations are right, it would appear that the Chancellor has managed to burn his reputation for fiscal prudence for no good reason at all.
“He would have been so much better advised to have done his sums before presenting his budget to the markets.”
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He added: “Even in the face of extreme volatility in global markets, with major currencies wrestling an incredibly strong US dollar, we will show financial markets and investors that our plan is sound, credible and will work to drive growth.”
The mini-budget included a cut in income tax from 45p to 40p in the pound for the highest earners.
Other taxpayers received a 1p cut in income tax and will get money from a U-turn in the rise in national insurance.
The Chancellor also decided against raising corporation tax to 25 percent, instead freezing it at 19 percent.