Falling gas prices could slash cost of Liz Truss’s £150billion energy bailout, City experts say
- Support for spiralling costs could cost much less than the predicted £150 billion
- Chancellor Kwasi Kwarteng hopes this will help to spur an economic recovery
- Analysis by Goldman Sachs suggests energy prices could halve by spring
Sliding gas prices on global markets could slash the cost of the Government’s energy bailout, according to City experts.
Prime Minister Liz Truss has pledged massive support to shield households and businesses from spiralling bills.
The cost to the Treasury was estimated to be more than £150 billion. But new forecasts suggests the figure could be much lower, allowing Chancellor Kwasi Kwarteng to use more money to finance tax cuts and to spur an economic recovery.
The more positive predictions come from US banking giant Goldman Sachs which says the price of gas could halve by spring.
Based on Goldman’s estimates, the annual cost to the Treasury would be just £30 billion by next year and ‘largely disappear’ by 2024/25, said Doug McWilliams of the Centre for Economic and Business Research.
The revised estimates have been described by one key Truss adviser as ‘more realistic’ than previous forecasts and a ‘game-changer’.
Prime Minister Liz Truss has pledged massive support to shield households and businesses from spiralling bills
Chancellor Kwasi Kwarteng wants to use the money saved on support packages to finance tax cuts and to spur an economic recovery
Gerard Lyons, chief economic strategist at wealth manager NetWealth, said gas prices have ‘fallen sharply’ since the Government announced its plan.
Lyons said financial markets had accepted the ‘extreme projections that were based on astronomically high gas prices being sustained’.
He added: ‘It has [since] become clear that European countries, including the UK, are taking action to address their energy supply needs.’
Last night, a Whitehall source said that the new analysis was ‘encouraging’.
Gas prices have soared following Russia’s invasion of Ukraine in February and have remained volatile. According to the Office for National Statistics, the price fell by almost a third in the week to September 11. That is still twice as high as a year ago.
Goldman said that with Moscow cutting off supplies, Europe has rallied to fill gas storage facilities before the winter.
It said this provided fresh optimism that prices will fall as low as £88 per megawatt hour by spring.
Businesses have demanded more clarity on a Government pledge to help them.
Trade body UK Hospitality has told The Mail on Sunday that a third of its members have cash reserves of one month or less – and are struggling to meet costs. It also found that 24 per cent of firms are running at a loss.
More details about support for households and businesses are set to be unveiled by Kwarteng in this week’s ‘mini-Budget’.
This will follow the Bank of England’s interest rate announcement on Thursday, when a record 0.75 percentage point increase in the base rate is expected, raising it to 2.5 per cent.
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