The UK plan could cost as much as £150 billion ($172 billion), analysts said. Add that to recent similar announcements by Germany, Austria and other EU governments, and the region’s bill for drawing the sting of rising prices is already more than €500 billion ($500 billion).
Starting in October, the typical UK household will pay no more than £2,500 ($2,880) for their energy for the next two years. The government will also support businesses, charities and public sector organizations with their energy costs for the next six months, and possibly longer.
“Because the program does not specifically target the most needy but is rather broad-based, it will be relatively expensive,” said Salomon Fiedler, an analyst at Berenberg bank.
“The support package for households may cost around £100 billion (over 4% of UK GDP). Further measures for businesses may take the total price tag to around £150 billion,” he added.
Britons desperately need the support. Already, the average annual household energy bill has increased by 54% this year to £1,971 ($2,263). Without the new plan to cap prices, bills would have soared above £3,500 in October, and even higher earlier next year. Businesses were facing even greater increases and many had warned they would not survive the winter.
“The price of inaction would have been far greater than the cost of this intervention,” finance minister Kwasi Kwarteng said in a statement. He is due 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 bumper profits of energy companies to pay for the measures. Instead, her government will likely have to increase government borrowing to subsidize bills.
A $500 billion intervention
Bruegel, a think tank based in Brussels, said last month that the European Union and United Kingdom had already committed €280 billion ($280 billion) to protect consumers from eye-watering energy prices.
But the bulk of the support has come since late February, when Russian President Vladimir Putin ordered the invasion of Ukraine, sending natural gas and oil prices soaring, Giovanni Sgaravatti, a research analyst at Bruegel told CNN Business.
Added together, Europe and the United Kingdom have so far promised to spend more than €500 billion ($500 billion) to subsidize bills.
On Friday, EU energy ministers will hold an emergency meeting. On the table will be a price cap on Russian natural gas, breaking the link between the price of gas and electricity, and a mandatory target for countries to use less power, in addition to other measures.
“We must cut Russia’s revenues, which Putin uses to finance this atrocious war against Ukraine,” EU Commission President Ursula von der Leyen told reporters on Wednesday.
— Mark Thompson, James Frater, Anna Chernova and Eleanor Pickston contributed reporting.