Britain’s energy crisis is self-inflicted
On what has been dubbed Black Thursday, the consequences of relentless government interference in the energy market were ruthlessly exposed as average household gas and electricity bills soared by more than 50%. The price cap originally proposed by Labor and introduced by Theresa May’s administration will be raised in April to take account of rising global gas prices.
Rishi Sunak, the chancellor, announced a series of measures costing £9billion to help cushion the financial blow he blamed on forces beyond government control. But while he is right that wholesale gas prices are not set by ministers, domestic politics is – and what we are witnessing is the result of three decades of woeful failure to develop a strategy coherent energy.
Nor is it enough to blame Russia for “weaponizing” its gas supplies, even if that is true. If this country had invested over the years in new nuclear and shale plants, it would be in a much better position to withstand such shocks.
All parties are to blame for this alarming state of affairs. The Tories scrapped the Thatcher government’s proposed nuclear program in a ‘gas rush’; Labor intervened in the market for environmental reasons, imposing costs on energy production that were deferred by the coalition government. Legislation supporting this approach was backed by most Tory MPs 12 years ago and has been bolstered by the current government’s carbon reduction targets. About 20% of energy bills are now covered by social and green levies.
The big political question is whether the country is willing to pay for net zero now that people can see the implications of a policy that will do nothing to tackle global climate change until the world’s biggest producers of CO2 refuse to change their own practices.
Additionally, rising energy prices are fueling inflation, which hit 5.2% last month and is expected to peak at 7% in the spring, prompting the Bank of England to raise interest rates to 0. .5%.
Yet Mr Sunak’s package will only help to improve the financial impact. For most households it is worth £350, while average energy bills rise by £700. It will be paid in the form of a discount on energy bills in October and a housing tax rebate. At the same time, national insurance contributions are set to increase by 1.25% for employees and employers, while tax thresholds are frozen. As Tory MP Peter Bone asked in the Commons yesterday, how is it a Tory approach to raise taxes and then give the money back to selected groups through grants and donations?
The Chancellor has ruled out scrapping VAT on energy, which the UK is now able to do since leaving the EU. It would cut £250 off the average bill overnight, but Mr Sunak said it would disproportionately benefit those who are better off.
Such dramatic interventionism would not have been necessary if successive governments had not mismanaged energy policy. It’s been a 30-year mess, the ramifications of which will be felt for decades – and mistakes continue to be made. Why, for example, don’t we follow the EU in designating natural gas as a ‘sustainable’ energy source to stimulate investment in its use as a transition to a low-carbon economy?
The cowardly failure to exploit vast amounts of shale; neglect of the nuclear program; the willful refusal to give the green light to further oil and gas exploration in the North Sea while importing both from abroad; all conspired to create the mess the government now finds itself in. Loaning billions to energy companies so that they do not pass the full costs on to their customers but recoup them when wholesale prices fall assumes that they will fall. If they don’t, the taxpayer is responsible for the cost and will therefore pay anyway.
Ministers invite us to believe that they are dealing with circumstances over which they have no control and yet government policies are at the root of our problems, whether it is the rush to net zero , the Climate Change Act, energy price caps, supplier regulations or the inability to make critical decisions when they were needed. This is not a crisis visited by outside forces. It is grown at home. The fault and the solution lie with our own politicians.