The British Prime Minister Liz Truss sells herself as a free marketeer who believes in small government and economic liberty.
She founded the “Free Enterprise Group” of Conservative MPs, and co-authored Britannia Unchained – a book calling for sweeping pro-market reforms. A few days into her premiership, she announced major tax cuts, noting that “the economic debate for the past 20 years has been dominated by discussions about distribution” but “what I’m about is growing the economy”.
All this stands in stark contrast to her energy policy. Truss recently announced that households’ energy prices will be capped for the next two years – a measure that’s expected to cost the tax-payer £170 billion, or even more. (I must have missed the chapter on price caps in Britannia Unchained.)
The true scale of Truss’s bailout is documented in new report by the Bruegel thinktank.
Researchers identified all the measures that have been announced by European governments to “shield households and businesses from the energy crisis” up to September 21st. They then added up the costs of those measures to obtain a total for each country. Results are shown below:
As you can see, the U.K.’s figure is by far the highest – both in absolute terms and as a percentage of GDP. An important caveat is that the figures only include measures announced so far. It’s likely that more will be announced over the coming months, which will presumably reduce the disparity between the U.K. and the rest of Europe.
In total, the 28 countries have earmarked almost half a trillion Euros for the energy crisis. As one of the Bruegel researchers told Bloomberg, “This is clearly not sustainable from a public finance perspective”.
If both Europe and Asia get a mild winter, we may come out of this crisis relatively unscathed – at least until next year. (Note that colder temperatures in Asia mean more competition for LNG, regardless of temperatures in Europe). But if the winter isn’t mild, costs could soar even higher.
“Growing the size of the pie,” Truss’s key economic objective, won’t be easy when we’re borrowing billions every month just to keep the lights on.