LONDON (Dispatches) -- Liz Truss is facing a political and economic baptism of fire this week with warnings of mass bankruptcies across the economy.
With the period of national mourning ending after the funeral of the queen, when Truss will fly to New York to attend the UN general assembly, and with MPs returning to Westminster on Wednesday or Thursday, the transition back to normal politics will be sudden and potentially bruising for a prime minister who had only been in office for two days before the Queen’s death.
On Saturday night, leading UK business organizations were renewing pressure on ministers for “absolute clarity” on what help government would offer them with their energy bills and warning of dire consequences if they continued to be left in limbo over the level of support in the medium term.
The new business secretary, Jacob Rees-Mogg, will make an announcement on support for business on Wednesday to be followed by a mini-budget by the new chancellor, Kwasi Kwarteng, on Friday.
The director general of the British Chambers of Commerce, Shevaun Haviland, said Truss’s previous announcement that businesses would benefit from a cap on bills similar to that for domestic users, for six months – made hours before news of the Queen’s death was made public 10 days ago – had been very welcome.
But she insisted that more detail was now urgently needed if many companies were not to scale back operations and some even close because of an inability to plan ahead.
“This cap will be a good thing for business,” Haviland said. “But we now need to know two things: first, what is the size of this? Then very quickly we are going to have to get into what is going to happen after six months.”
She said many businesses had seen their energy costs rocket by 300% or more compared with last year, adding to a list of problems that was causing many to question their futures.
“I have had several businesses say to me this is worse than Covid. Rising raw materials, soaring costs including labor, inflation at 10% and now energy prices. They do not know where to turn. In May, 23% of our businesses said they would have to scale down production or cease trading. It will have gone up significantly since then. The government has got to get on with it.”
Emma McClarkin, chief executive of the British Beer & Pub Association, said: “Businesses are making decisions now as to whether they will be able to make it through the winter. It is no exaggeration to say that the impact of this energy crisis could be worse than the pandemic in terms of permanent closures.
Kwarteng is expected on Friday to unveil a huge package that includes details of the energy price cap and £30 billion in tax cuts – including reversing April’s rise in national insurance – as promised during the Tory leadership election.
Tory MPs are already concerned that Friday’s event, which is also expected to include the axing of a cap on bankers’ bonuses, will provide an “open goal for Labour” in Truss’s first weeks as prime minister.
Keir Starmer’s party is determined to highlight the contrast between what it will portray as Tory tax cuts for the rich and its policy of paying for a freeze in the energy price cap for those most in need by taxing the excess profits of energy companies. The £13 billion-a-year reduction in national insurance also assists richer households more than poorer families.
Economists say a key challenge for Truss will be to prevent the international money markets from losing confidence as Britain’s embattled economy enters its worst period since the 1970s, when oil-price shocks forced the Treasury into the arms of the International Monetary Fund.
With inflation hitting heights not seen for 30 years and the pound sinking to a 37-year low, there is the possibility that a gamble on tax cuts and deregulation of the City will spook markets and leave the Treasury struggling to cope with a wave of business closures and millions of households in fuel poverty.
The gloomy outlook is not expected to deter the Bank of England from increasing its base interest rate from 1.75% this week.