In this newsletter:
1) Boris warned energy crisis could topple the Tory Government
Express on Sunday, 9 January 2021
Mail on Sunday, 9 January 2021
3) Inflation could soar to 7% if ministers fail to cap rocketing household bills
The Observer, 9 January 2021
7) Jeremy Warner: Hammering ‘big oil’ will do nothing to help fuel poverty or the climate
The Daily Telegraph, 8 January 2021
The Daily Telegraph, 8 January 2021
The Daily Telegraph, 8 January 2021
Express on Sunday, 9 January 2021
BORIS JOHNSON has received a dire warning after polling shows the energy crisis could topple the Tory Government.
It comes following a global shortage of natural gas earlier this year as economies unlocked from the pandemic. Last week, energy firms warned that bills were likely to remain high until at least 2023, as they called on ministers to provide consumers with relief from higher costs.
Analysts have warned that the UK’s energy price cap looks likely to rise by more than £700 in April.
Speaking to Express.co.uk, Mike Foster, the CEO of Energy and Utilities Alliance (EUA), an independent trade association, said that the Tory Government could face dire consequences as a result of the energy crisis.
He said: “We're looking to the politicians to take action now, maybe only in the short term as a temporary, for the increases that people have already faced.
“More importantly, we know the increases they're going to face come April when we believe that the price cap will increase significantly.
“Some organisations reckon a 50 percent increase in energy bills. It's a shocking state of affairs if nothing is going to be done by the Government.
“That is a major political problem that the government has to address."
In a poll conducted by the EUA, it was found that the cost-of-living crisis is hitting Red Wall voters hard, with an astonishing 79 percent suggesting the Government has alienated working families.
EUA’s analysis of the polling found that 17 of the 18 seats would switch back to Labour if there were to be an election now.
This comes after Mr Johnson has been accused of walking back on his Brexit Campaign promise by suggesting that he will not cut VAT on energy bills because it would help “a lot of people who perhaps don’t need the support” with rising living costs.
Mr Foster said: “Ahead of the Brexit referendum, Boris Johnson campaigned to get rid of all VAT on energy costs. That was one of the centrepieces of the Brexit campaign.
“That has got tremendous appeal, but at the last budget, where Rishi Sunak could have implemented that policy with an 80-seat majority, where it would have been very easy to do it, he chose not to."
Even though only a handful of Red Wall seats were polled, Mr Foster is confident that the crisis would have an impact on traditionally conservative seats as well.
He said: “ [This crisis] is affecting everybody. If you are a conservative MP, who was elected in an area that was previously Labour, you're desperately trying to hold onto that seat.
“The cost is living issue is definitely having an impact on opinion polls broadly across the whole of the UK.
“As a consequence, you could see not just the red wall seat, but constituencies up and down the land switching sides if this is not addressed.
“That's a problem not only for the PM, it's also for a problem for 17 out of 18 MPs from the seats we polled who'd probably be out of a job if nothing is done about the looming energy costs."
17 of the 18 Red Wall seats that the conservatives would switch back to Labour
Mr Johnson’s promises during the Brexit referendum may have had an impact on the results of this polling.
Mr Foster said: “During the campaign, it's on record that Boris Johnson and Michael Gove argued, quite rightly, that energy bills take up a disproportionate amount of an ordinary families' income because people want to live in a warm and comfortable home.
“There is a disproportionate impact on the least well off for having a warm home, compared to what a millionaire may be spending on their bills.”
Mail on Sunday, 9 January 2021
Boris Johnson must reset his Government along traditional Conservative lines if he is to avoid defeat at the next General Election, his former Cabinet Minister Lord Frost warns today.
In his first interview since his sensational resignation as Brexit Minister last month, Lord Frost calls on Mr Johnson to revitalise the country with 'free markets, free debate and low taxes' and to 'set the direction of travel' to appeal to ordinary voters.
He says that the course change is essential for the party 'if we're going to get out of this little trough and win the Election in a couple of years' time'.
Lord Frost quit the Government in December after becoming disillusioned with Mr Johnson over Covid restrictions, tax rises and 'net zero' green policies.
A despairing Prime Minister had persuaded his ally to keep the resignation quiet until January, when he hoped it would inflict less damage on an administration that was at the time battling claims Downing Street parties had breached Covid rules.
But the plan was scuppered when the MoS revealed his resignation shortly before Christmas, triggering a late-night exchange of letters and Lord Frost's immediate exit from the Government.
Today's interview comes after the Prime Minister held a series of meetings to draw up plans to relaunch his Government before May's local elections and growing talk on his backbenches about a possible leadership challenge.
Changes are likely to start taking effect next month, when the worst of the winter Covid wave is expected to have passed.
Lord Frost makes clear he does not want Mr Johnson to stand down, but to change his policies –and the people around him. [...]
The Red Wall polling also showed a lack of enthusiasm for green policies such as levies on energy bills and the multi-trillion-pound cost of reducing emissions to 'net zero' by 2050 at a time when family finances are under such pressure.
'It's a huge issue, obviously, now and the high cost of energy plays into so many other aspects of the economy. I think people have been sold a kind of view that the net zero transition can happen without much increase in costs or problems.
'That's obviously not the case and people are now seeing that. I personally think that climate change is serious. But I'm not convinced it's the most serious problem that we face. The country faces lots of other problems and we need to do everything we can to keep the cost of energy low and focus on security of supply.
'Green politics, net zero, the climate emergency are part of mainstream opinion but it's really important to keep debating, keep hearing alternative perspectives on this if we're going to reach the right policies. And that's what Conservatism means.'
Inflation could soar to its highest level in more than 30 years in 2022 should ministers choose not to place any controls on increasing energy bills in April, new government figures have suggested.
Energy regulator Ofgem is reviewing its existing price cap, which will be revised in February after a record-breaking six months of skyrocketing wholesale prices.
Experts have warned energy bills could rise by more than 50 per cent, sending the average cost of household gas and electricity to around £2,000 per year.
Ministers have been warned such a steep increase could see inflation rise from its current rate of 5.1 per cent, to more than 7 per cent should the Ofgem price cap rise go unchecked, reports the Times.
Financial services company Goldman Sachs provided a similarly damning picture as they warned hiking up fuel bills could see inflation hitting 6.8 per cent in April.
Earlier this month, the Bank of England said it expected inflation to peak at 6 per cent in April - its highest rate since 1992 - and advised families to pencil in a larger hit to their budget for shopping, bills and days out.
Experts have warned the latest squeeze could be even worse than the credit crunch 14 years ago, thanks to a toxic combination of spiking prices, the looming national insurance hike, and over a million people being dragged into the higher rate of tax.
Tory MPs are hitting the panic button over the prospect of the eye-watering £12billion NI increase taking effect in April, with the backlash sparking a tense standoff between Jacob Rees-Mogg and Rishi Sunak in Cabinet this week.
Families also face further painful tax rises later this year, designed to pull in more money for spending on the NHS and social care.
National Insurance is rising by 1.25 per cent while a freezing of income tax brackets will mean more people are dragged into higher rates.
The Observer, 9 January 2021
A cost of living crisis is “driving angst” among Conservative MPs about spring’s local elections, senior party figures are warning, as an overwhelming majority of voters in a survey reported that they had seen their costs rise faster than their income.
The elections, which take place across London, metropolitan boroughs and some county councils, are being regarded as the next major source of political danger for Boris Johnson. MPs are sounding the alarm because inflationary pressures are set to peak just weeks before voting takes place. Some Tories are already warning they will try to engineer a parliamentary clash with the chancellor, Rishi Sunak, to force him into action.
“I think it’s fair to say that the cost of living is one of the things that’s actually driving angst amongst MPs,” said Lord Hayward, the Tory peer and respected pollster.
The MPs are conscious that the elections will be happening in the wake of increases in energy and national insurance charges due to come in three or four weeks earlier.
“Large numbers of MPs have never been in a parliament where the government has been 15 points behind. This for them is a new experience to be even 6% or 7% behind, though the last two opinion polls have actually been better for the Tories,” Hayward said. “But certainly there is an angst amongst MPs who, confronted by 6% to 8% deficits, are looking towards their local elections.”
The news comes as an Opinium poll for the Observer suggests households are already noticing price inflation. About 70% of voters said they had seen their cost of living increase more than their income over the last 12 months, despite reports of pay rises. A majority who voted Tory at the last election (57%) said they backed removing VAT from energy bills.
One in eight voters (12%) would now describe their financial situation as “struggling”, up slightly from 9% from the end of lockdown in April. A huge majority of the public say they have noticed price rises. About 86% have noticed a rise in the overall cost of living, 83% a rise in grocery bills, 80% a rise in energy bills and 59% a rise in council tax.
A likely remedy from the government will be an expansion of the £140 Warm Homes Discount aimed at the poorest households. However, Tories are already warning that expanding the scheme will be insufficient: some even suggested they would threaten to vote against this year’s budget without firmer action. “That is only for those on benefits, predominantly,” said one influential figure. “The just-about-managing are not helped. I hope that they introduce a green levy escalator that goes down when the wholesale energy price rises.”
The government is receiving guidance that inflation could rise to as high as 7% if they fail to take action. Average annual fuel bills could rise from £1,300 to about £2,000 a year.
“The whole timing of this cost of living increase, whether it’s caused by world factors such as energy prices or whether it’s caused by domestic factors such as increased taxes, is coming at a very awkward time,” said another party veteran. “Not only the local government elections, but just at a time when really everybody wants to sort of get beyond Covid. We’re all hoping that after this winter is over and Omicron doesn’t turn out as bad as everybody feared, we want to emerge from that and start to get our lives back. This whole cost of living thing – I think it’s going to become quite tricky for the government.”
Energy regulator Ofgem is set to announce a rise of up to £700 in its price cap at the start of next month. Bills would increase from April, with the local elections set for 5 May.
Tories have been demanding a cut to green levies, the end of VAT on energy bills or a reversal of a coming increase in national insurance to ease the pressure. Labour has so far backed cutting VAT on energy bills, but is also under pressure to go further.
Stephen McPartland, the Tory MP for Stevenage, said that family finances were like a “leaky bucket that is getting leakier and leakier”. He called for the energy price cap not to be increased.
Lib Dem leader Ed Davey said there was now a “growing revolt in former Conservative heartlands against this government”. He added: “As we saw in North Shropshire, even lifelong Conservative voters are fed up with Johnson’s incompetence and lack of decency. His failure to act on the cost of living crisis is simply adding fuel to the fire.”
Sky News, 9 January 2021
The party's £6.6bn package of proposals includes removing VAT on bills for a year and a windfall tax on North Sea oil and gas producers.
Labour is proposing removing VAT on bills for a year and a windfall tax on North Sea oil and gas producers as part of a package designed to save households hundreds of pounds on their energy costs.
In addition, the £6.6bn plan would see the party expand and increase the warm homes discount for those most at risk.
Labour says the package of support would save most households around £200, while targeted support to those on lower incomes, pensioners and the squeezed middle would mean they save as much as £600.
Boris Johnson's government has come under concerted pressure to act in recent weeks, amid worries over the rising cost of living.
Experts have predicted that rising wholesale costs will result in a 50% rise in bills from April, when the latest change to the energy price cap takes effect.
If this comes to pass, an average household on a supplier's default tariff would face paying nearly £2,000 a year for the gas and electricity, compared to under £1,300 at the moment.
Speaking to Sky News, the party's shadow chancellor Rachel Reeves said that if now is not the time to cut VAT on energy bills then "frankly I don't know when is".
"The prime minister was the biggest advocate for cutting VAT on gas and electricity bills during the European referendum [in 2016]," she told Trevor Phillips on Sunday.
"But now when cutting those bills would make more difference than ever, the prime minister says no.
"Well, I say that bills can't be paid on broken promises. The government should honour that commitment that the prime minister made to take VAT off gas and electricity prices.
"If this isn't the time to do it, then frankly I don't know when is."
6) Clock ticks for U.K. to ease $24 billion jump in energy bills
Bloomberg, 8 January 2021
(Bloomberg) — U.K. households face a $24 billion spike in their energy bills in April, and the government is running out of time to do something about the biggest reason why: ballooning wholesale costs.
Finding a way to help energy companies lessen that 18 billion-pound jolt, or at least spread it over several years, would be the most effective option, according to industry executives. But the government needs to act before the energy regulator sets the level for some household bills on Feb. 7. Missing that deadline also carries political risks.
Business Secretary Kwasi Kwarteng met company bosses this week — with many attending in person in a departure from the purely virtual meetings held in recent months. The chief executive officers of Centrica Plc and Octopus Energy Ltd. were among those in the room. One potential solution would be for the government to help arrange a multibillion-pound fund that the companies could tap to slow bill increases, but no agreement was reached.
“They’re certainly running out of time,” said Guy Newey, strategy and performance director at researcher Energy Systems Catapult and a former political adviser. “They need to be able to tell consumers, ‘We know bills are going up, and we’ve got your back.'”
Other options considered at the meeting included eliminating green levies, cutting taxes on bills and extending financial help such as the Warm Home Discount. Yet their impact would be minimal, and some already look less likely to happen. Reducing wholesale costs would be the most effective, but the government so far isn’t feeling the urgency.
The government said Friday it’s continuing to talk with the industry, and it will keep supporting the lowest-income families and the most vulnerable people.
The energy bill for a typical household is set to jump 50% in April to almost 2,000 pounds, more than double the level set in 2017. An increase of that magnitude means the nation’s poorest may end up spending one of every eight pounds on energy consumption, according to Electricite de France SA.
Surging wholesale prices led to the collapse of 24 household suppliers. Their accounts were taken on by surviving competitors, and some of the costs associated with those additions will be tacked on to energy bills next year.
One action being considered is to provide private financing in a smaller fund that would allow companies to spread those new-customer costs over a longer period. Barclays Plc is among the banks considering the plan, Bloomberg News reported last month.
The situation is turning into a full-blown political crisis for Prime Minister Boris Johnson and his Conservative Party, with warnings that some Britons will be forced to choose between buying food and heating their homes.
“This could potentially be one of the key tests of Johnson’s political future, and that’s because it’s a wider cost-of-living issue,” said Josh Buckland, a partner at Flint Global and a former government energy adviser. “That will really make Conservatives nervous at a time when they’re already feeling uncertain of the future.”
The crisis has been brewing for years, as the requirements for suppliers entering the market were lowered about a decade ago. While the rally in costs stretches across Europe, the U.K. is particularly vulnerable because it relies on imports for about half of gas consumption in the aftermath of closing its largest storage site.
Fixing these issues would require a total redesign of the market, something that can’t be achieved in just a few weeks.
Most of the potential remedies being discussed would barely dent a household bill. For example, charges are applied to bills to pay for environmental policies like building renewable energy capacity. Removing these would cut tariffs only by about 140 pounds, and that likely would be temporary.
Cutting the 5% Value Added Tax would save 95 pounds, according to Martin Young, an analyst at Investec Bank Plc. Johnson argued during the Brexit campaign that leaving the European Union would allow the U.K. to remove the VAT from energy bills, but he appeared to reject that idea this week on the grounds that it would help “a lot of people who perhaps don’t need the support.”
“Short-term sticky plasters, such as abolishing VAT, will make matters worse,” said Dieter Helm, professor of economic policy at Oxford University and former energy policy adviser to the government.
The government also could expand the number of households that qualify for support, including the Warm Home Discount for low-income households, Winter Fuel Payments for pensioners and the Household Support Fund for vulnerable people.
Extending those measures, rather than creating something new, is more likely to appeal to Chancellor Rishi Sunak, said Carla Hoppe, founder of Rethink Tax, a policy education organization.
“Treasury have demonstrated willingness to take targeted action to support business and employees who needed it most during the pandemic,” she said. “The case is clear now for further targeted support for households struggling with high inflation and rocketing energy bills.”
The Daily Telegraph, 8 January 2021
For now the world is still overwhelmingly dependent on hydrocarbons for its energy needs and we need companies to keep producing them
For lessons on how to make a bad situation even worse, ask Ed Davey, leader of the Liberal Democrats. He’s just proposed a £5bn “Robin Hood” windfall profits tax on the “robber barons” of the oil and gas industry so as to help pay for fuel bill rebates and ease Britain’s cost of living squeeze.
The trigger for his proposal seems to have been the boss of BP, Bernard Looney. Announcing bumper third-quarter profits a little while back, he rather ill advisedly said his company had become a “cash machine” as a result of soaring oil and gas prices. Sir Ed has quickly given notice of a big withdrawal.
But hold on a moment. Is this the same Ed Davey who as energy secretary from 2012-15 under David Cameron’s coalition government helped lay the ground for the disaster zone, with its myriad market and regulatory failures, that UK energy policy has become? Why yes it is. Politicians seemingly find it easy to forget their past.
I don’t wish to dwell unduly on the Lib Dem leader’s special contribution to today’s shambolic state of affairs; suffice it to say that loading the cost of the Government’s green agenda on to fuel bills, rather than having the guts to do it progressively and upfront through the tax system – which would have been the more logical and equitable approach to incentivising the desired energy transition – is a large part of the mess we are in.
Still, we are where we are, and not content with his part in getting us there, Sir Ed now seems determined to foul things up even more.
Obviously, the Lib Dems remain a fringe political force of only marginal mainstream influence, despite recent by-election successes. We’ve been told that the Government is not for the moment contemplating a windfall tax. But there are precedents for it even under Tory chancellors – George Osborne imposed a $2bn (£1.5bn) windfall tax on North Sea producers back in 2011 when the oil price surged above the $100 a barrel mark – so the proposal needs to be nipped in the bud before it develops wider political wings.
The most obvious problem is who and what precisely would the tax be targeting. The bulk of Britain’s gas today is imported. It would be hard to impossible to tax such production. Even if you could, the tax would only be passed on to consumers, negating any gains. As for retail fuel suppliers, many of them are effectively bust, having bet the house on wholesale prices remaining below the regulatory cap, and therefore have no profits to tax.
That essentially limits the field to North Sea producers, to UK based oil and gas traders, and to UK domiciled oil and gas companies. As Osborne discovered with his “fair fuel stabiliser”, the effect of taxing the North Sea more was merely further to deter investment in an already mature and declining asset, making the UK even more dependent on imports from the likes of Russia and the Middle East. Recognising the error of his ways, Osborne eventually in effect abolished Petroleum Revenue Tax entirely in an attempt to reinvigorate development.
Just the opportunity to drill on British soil or waters would these days be a fine thing. Climate change goals have taken the place of oppressive levels of tax as the main deterrent. Both BP and Shell have been steadily disengaging from the North Sea for years.
Shell recently doubled down on the withdrawal by scrapping plans to invest in Cambo, a proposed oil field off the Shetland Islands, citing an insufficiently strong commercial case. Yet as one of the prospects targeted by climate change campaigners in the run up to Cop26, it is hard to resist the suspicion that Shell decided simply that the potential returns were not worth the political heat.
In any case, Scotland’s First Minister, Nicola Sturgeon, has put up a giant “not welcome here” sign to the North Sea’s dwindling band of faithful. Just as short sighted is Boris Johnson, who has effectively outlawed fracking. The US meanwhile sits pretty, with self sufficiency now underwritten by abundant frackers and far lower gas prices than are available in Europe.
If further taxing the North Sea is likely to prove counterproductive, that effectively leaves only UK domiciled oil and gas companies there for the fleecing. Just two of them – BP and Shell – are big enough to make a significant difference. Perhaps Sir Ed hadn’t noticed, but far from being the bad boys of the sector, both of them have got with the programme by leaning over backwards to join the green energy transition stampede. The business case for this transformation is that green energy will take a long time to deliver meaningful returns, if indeed it ever does, but that it can be funded in the meantime from the abundant returns of hydrocarbon runoff.
Whether these strategies make sense from a shareholder value perspective looks rather more questionable. One of those who has come to the view that it does not is Lord Browne of Madingley, BP’s former boss. In an article for Time magazine, he’s joined the growing throng of activist investors calling for a breakup. Browne always was more of a deal maker than an oil man, and having built BP via mergers and acquisitions into the giant it is today, he now presumably hopes to capitalise on the potentially rich pickings of tearing it apart.
Any such take down will be excellent news for private equiteers and other vulture capitalists on the lookout for oil industry roadkill, but it is very unlikely to further the cause of the energy transition so beloved of the likes of Sir Ed. For it is not just prospects for a carbon free future that squeezing BP and Shell dry would harm.
The fact is that for now the world is still overwhelmingly dependent on hydrocarbons for its energy needs. We are going to need the gas and oil these companies produce for a long time to come. Drive the industry offshore if you must, but by reducing Britain to an investment desert, it only makes us even more dependent on outside forces that care little or nothing about the demands of climate change.
I wonder by the way whether Shell is not already having second thoughts over its decision to switch domicile to the UK for tax purposes. This was hailed at the time as a triumph for a newly Brexited Britain, but now the company finds itself being sized up as red meat for Treasury feasting. Neither BP nor Shell have got much credit for taking big risks with shareholder value and towing the politically fashionable line on climate change.
Increasingly blacklisted by environmentally conscious institutional investors, their share prices have failed to respond as they once would have done to the rebound in global energy prices. They deserve a little TLC, yet on all fronts they are treated like pariahs. We’ll regret it once they are gone.
The Daily Telegraph, 8 January 2021
On Covid and the climate, our mitigation policies are more damaging than the issues they purport to solve
The country is facing two profoundly serious crises, one of which is already upon us with the other scheduled to arrive within months. The first is the extraordinary collapse of staffing numbers in essential public services, most notably the NHS, and the other is the imminent explosion in the cost of living. Both of these are the subject of exhaustive public discussion and media attention much of which tends to treat them as forms of natural catastrophe which had, in the manner of a Greek tragedy, simply fallen out of the sky onto the heads of our hapless generation – the sort of events that insurance companies call “acts of God”.
In other words, all of this is terrible bad luck: our era has simply drawn a bad hand and we must live through the consequences as best we can. Governments are flailing in their attempts to cope but there are no obvious remedies to hand.
So, for example, a cursory reading of the coverage of the staffing emergency which has hit hospital and primary healthcare services is simply that it is an inevitable consequence of the omicron variant of Covid which spreads so rapidly that it is now infecting unprecedented numbers of NHS employees.
But that is not really true, is it? It is not omicron which is responsible for all these staff absences since the illness it causes in healthy people generally amounts to no more than a mild cold – when it produces symptoms at all. Many of the huge numbers of staff unable to report for work are not staying away because they are sick but because they have been ordered to isolate if they test positive for Covid, even if they are completely asymptomatic.
It is government policy on Covid, which was devised to deal with previous, more severe variants, rather than the virus itself, that is responsible for the NHS being under what ministers describe as “great pressure”. Even though the period in which Omicron – particularly when it is asymptomatic – is transmissible, is thought to be much shorter, staff are still legally obliged to isolate for seven days following a positive test. Make no mistake, the unprecedented level of staff absence which is threatening to undermine the provision of national healthcare is the consequence of a government decision, not a tragic dictate of fate.
Political leaders are not helpless in this matter: they have as much power to determine official policy as they always have had. But now they are particularly exercised by the demands of self-interested lobbies who make conflicting (and sometimes self-contradictory) demands. One minute NHS bodies (and their unions) are demanding that staff stay at home when they test positive – and the next, they are declaring a national emergency over staff shortages.
This alarming confusion can only be resolved by clear government decision-making which must make use of the authority granted to it by democratic accountability. These are now political questions: they involve responsibilities for social priorities, economic planning and the distribution of national resources which only elected governments – not epidemiologists or mathematical modellers or NHS executives – may settle.
Then there is the crisis to come: the enormous rise in the cost of living, some elements of which can be seen as beyond the control of this – or any – current government. Increases in the price of imported fuel for energy can be attributed to the sudden resurgence of demand that followed the easing of the global pandemic. But what is about to happen to our population – the degree of pauperisation and, quite possibly, the life-threatening risk of unaffordable energy – will be much worse than it needs to have been.
The terrifying increases in energy bills for homes and industry (inevitably affecting the price of food and manufactured goods) which are to come will not be strictly proportional to the increased cost of fuel. They will be exacerbated by deliberate government policy: roughly a quarter of electricity charges go on green levies and environmental taxes which are designed both to subsidise sustainable energy development and to coerce customers into using less power.
The imposition of such punitive taxation on the use of energy was (and remains) a political decision. As we all now know, it is part of a conscious plan to achieve net zero carbon emissions: a government objective the costs of which the present governing party neglected to mention in the course of its election campaign.
As it happens, it will serve to exacerbate and prolong the damaging effects of what might otherwise have been a temporary price jump on world energy markets.
Combined with another political decision, to abandon our own natural reserves of energy supply (also in the cause of achieving net zero), it will guarantee the most severe possible effects of a difficult historical moment. What the Johnson Government seems to be considering as a way of mitigating these effects is old fashioned welfare support for the “least well-off”. If you really are so poor that you can’t afford to heat your home, you will be offered some sort of means-tested benefit to help pay your extortionate bills.
This is a classic poverty trap measure. Quite apart from the messy quagmire that means-testing always produces, it creates a disincentive to increase your earnings and unfairly penalises those who are just above the threshold for assistance, not to mention the millions of middle income households who will face serious reductions in their quality of life with rising taxes as well as energy costs.
Isn’t it time we had the real debate then? You don’t have to be a Covid or a Climate denier to argue with the decisions that are being taken in the name of those two horsemen of the apocalypse. The discussion we need to have is not whether the threats are real but how they should be addressed.
Instead of locking people up to deal with the former, and dismantling modern prosperity to address the latter, maybe we should consider how these problems can be managed as fairly and humanely as possible.
That’s what democratic politics is for, isn’t it?
The Daily Telegraph, 8 January 2021
Like Germany and Japan in 1944 or Sir Edward Heath in 1974, Boris Johnson is discovering the hard way that there is nothing so vulnerable as a modern state desperately short of energy. What is surprising is that the Government has yet to do anything meaningful about our current crisis.
When it comes to energy there are two competing principles. First, it is no use saying that the Government should not intervene. Governments have always been the biggest players in the energy market, here and around the world, and the shortage has been caused by Government policies. The reluctance to follow the EU’s lead in designating natural gas and nuclear as “sustainable” for investors and continued delays for the 18 North Sea fields awaiting approval, are all naïve.
The second, contrary principle is to admit that despite governments’ dominant role in the global energy market, it is still a market. In the end, supply and demand have to balance via the price mechanism. In one of Theresa May’s many catastrophic decisions, she created an energy price cap, which has undermined investor confidence. The cap was raised by 12 per cent in the autumn to circa £1,277 per household. The surge in wholesale energy costs since means the next time it is set, in February, the cost is likely to rise to nearly £2,000. This would be politically intolerable so we should assume it is unlikely to reach that level.
If the market is to balance and domestic prices are not to hit astronomic levels, the Government can do one of two things. It can depress demand, as Sir Edward Heath tried with the three-day week in 1974. Or it can increase supply. The latter is the most palatable option, but it requires the Government to rustle up some cheap energy supplies urgently. It can do this by giving energy firms subsidies or cheap loans, or it can do so itself, by buying in the stuff directly. There are no other choices.
What sort of energy do we need? There is only one readily to hand: natural gas. This accounts for more than half our primary energy consumption, more than half of which is now imported after our North Sea production started to decline 20 years ago and onshore fracking for gas was wrongly banned in 2019.
Natural gas is, contrary to myth, abundant, including in the North Sea, which is why Norway and the Netherlands have stepped up exploration and production there. Natural gas has lower emissions than coal and oil. And gas power stations can be readily turned on and off, making it the perfect transition fuel in the move to a lower carbon economy. The simplest short-term fix would be for the Government to go into the market itself and secure adequate supplies from respectable sources which it can inject cheaply into our domestic market. Such a multibillion pound expenditure on behalf of the taxpayer is, of course, far from ideal and should be a one-off.
In order to ensure it does not set a precedent, Kwasi Kwarteng, the most sensible energy secretary for a while, must bang heads together at the Oil and Gas Authority. It needs to expedite approvals for new North Sea fields and for exploration west of Scotland and for onshore fracking in the Midlands and the North (where the deposits are). Even if these supplies are not in the end required, identifying them and creating a clear legal framework for their exploitation would help us to avoid future crises.
Global warming is indeed a threat and moving to low carbon energy would loosen our dependence on unsavoury regimes. However, the specific “net zero by 2050” policy, thus far, has proved to be a racket to raise prices for consumers. That is a long-term problem. In the next few months and years we will need natural gas, and plenty of it.