Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Nottingham Post
Nottingham Post
National
Joseph Locker

Government's energy bill support will 'only marginally' help households

Business and economics experts in Nottinghamshire say Conservative Government help for soaring energy bills will "only marginally offset" the strain on the personal finances of ordinary people. On top of this comes economic uncertainty following the unveiling of Prime Minister Liz Truss and her chancellor Kwasi Kwarteng's mini-budget, which has left many businesses at a "critical point".

On September 30 Ms Truss and Mr Kwarteng met with the Office for Budget Responsibility’s (OBR) budget responsibility committee, including its chair Richard Hughes, at Downing Street. The Tory top brass said it welcomed the scrutiny of the OBR and a fiscal and economic forecast will now be published on November 23.

Their meeting came amid economic turmoil following the publication of the mini-budget, which cut the top rate of tax from 45p to 40p, handing 660,000 people who earn more than £150,000 a year a saving of £10,000, while income tax was slashed alongside Stamp Duty.

READ NEXT: Key £28.6m upgrade plan for busy Nottinghamshire junctions greenlit

Borrowing, however, remained high and this prompted serious concern and uncertainty across the country. As such, the Sterling crashed, mortgage rates soared and the Bank of England was forced to buy long-dated government debt.

If it hadn't, it says there would have been a "material risk to UK financial stability".

'From an East Midlands perspective, stock prices wouldn’t be my primary concern'

But what does it all mean and is the stock market crashing in value a concern here in the East Midlands? Not just yet, one expert says.

Dr Florian Biermann, senior lecturer in economics at Nottingham Trent University, says: "Yes, the mini budget has wiped out a lot of stock market value. But this may be a short-run effect. Stock prices are notoriously volatile and who can say where they will be in a year from now?

“The connection between stock market prices and real economic investment is somewhat vague. The theoretical argument goes: if stock prices are high, entrepreneurs will build factories because those factories are then valued higher on the stock market than what it costs to build them. In reality, it is often the case that closing down factories increases the stock market value. From an East Midlands perspective, stock prices wouldn’t be my primary concern.

“If you believe that UK manufacturing is just on life support and not yet fully dead, a weaker pound may increase survival chances. A weak pound makes our products cheaper abroad and makes it less attractive to import stuff. Nottinghamshire, with its rich manufacturing history, may be a place where manufacturing investments might take place in future.“

'Households who have mortgages may get into liquidity trouble'

On the other hand, however, there could be real impacts on ordinary people just trying to make ends meet on the ground.

Ms Truss finally broke cover on September 28 with a spate of BBC local station interviews in an attempt to stabilise things. It didn't quite pan out.

Mortgage rates have reportedly been soaring for those not on fixed-rates, or those looking to secure a mortgage at this present time. And so, Dr Biermann says, Ms Truss's continued attempt to drive home the win with her £60bn energy support package has not worked, with the offset not nearly as significant as it may have been before.

"The increased mortgage costs team up with inflation for a perfect cost-of-living storm," he added. "The government measures to help with energy costs will only marginally offset the strain on personal finances ordinary people experience at the moment.

“Households who have mortgages may get into liquidity trouble, and that is bad enough and can lead to terrible consequences like repossessions. If these households survive, then in the longer run inflation will dramatically reduce what they are owing their banks in real terms. In principle, it is better to be a borrower than a lender if inflation strikes.

“The mini budget is a stimulus. Kwarteng reduces taxes but does not reduce government expenditure. The problem is: a stimulus makes absolutely no sense in the current situation. Keynes wanted to stimulate the economy when it is running below capacity, but we are not in that situation. We still have a tight labour market, which is a bottleneck for growth, and the ongoing inflation proves that companies are not willing or able to react to additional demand by producing more. All of this stimulus goes into inflation."

'It’s clear that confidence among East Midlands firms has nosedived in recent months'

The issues that have been plaguing the Tory Party since its mini-budget have only compounded a lack of confidence in governance from businesses in the region. While Sterling has since begun to rise in value, the remaining uncertainty is alarming.

The delayed forecast, too, will only add to the dwindling confidence from business leaders. East Midlands Chamber director of policy and external affairs Chris Hobson says: “It’s clear that confidence among East Midlands firms has nosedived in recent months, with our latest Quarterly Economic Survey for Q3 2022 showing optimism about profitability growth down by 21% compared to the previous quarter and hope for a turnover boost dropping by 17%.

“The impacts of inflation, especially the increasing volatility in energy markets and subsequent interest rates, has started to dull activity and many businesses feel they are at a critical point.

“After a period of political paralysis throughout the summer, action was desperately needed to get the economy moving again and the Chancellor’s mini-budget features a number of measures that go some way to responding to businesses’ requests across three areas – getting the basics right; providing a consistent, long-term approach; and removing blockers to growth.

“Key policies like reversing national insurance and corporation tax increases, supporting businesses on energy costs in the short term, and streamlining planning processes to develop infrastructure all go some way to helping businesses get through a tough period and begin to plan ahead.

“However, the impacts of the increased costs of these schemes are as of yet unknown, with the hoped-for payback potentially not being for a few years.

“Following recent turmoil with sterling and in bond markets, it’s essential that Government offers clear reassurance about its plans to ensure that as a country, we are taking a responsible approach to managing our finances and aren’t viewed as a risk by external investors.

“Further detail on the costings of recent proposals, along with anticipated growth returns and the anticipated timescales for this, will help with this.

“The market uncertainty harms consumer confidence and doesn’t support those that are looking to invest in their businesses, despite what positive measures might have been in the Chancellor’s Growth Plan. As such the current proposal from Government of giving further details and costings towards the end of November feels too far away for businesses to wait.”

Read Next:

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.