Theresa May’s Laboured energy stunt
The Tories’ energy price cap is straight out of Labour’s failed manifesto.
With all the controversy about Brexit, National Insurance u-turns and grammar schools, Theresa May’s political advisers must have been rummaging around for an idea that would seem unequivocally popular. The last place you would expect them to find one is Labour’s 2015 General Election manifesto. Yet if reports in Monday’s press are to be believed, that is exactly what we should expect.
The issue is rising energy prices. There have been endless complaints about profiteering by the ‘Big Six’ energy companies: British Gas, EDF Energy, E.ON UK, Npower, ScottishPower and SSE. Those foolish enough to be on these companies’ standard tariffs have been paying considerably more for their gas and electricity than those prepared to shop around for the best deals on price-comparison websites. Moreover, things are even more overpriced for those who are forced to use ‘pay as you go’ energy, and pay their fuel bills upfront at the local corner shop.
Labour’s big idea, originally announced in 2013, was an energy price cap. The headline proposal was for a price freeze for two years while the energy market was reformed, with production and supply companies separated and energy sold on an ‘open exchange’. The idea was roundly ridiculed at the time, although Conservatives quickly realised that energy companies were an easy target for a rhetorical kicking.
Now, Theresa May is talking tough again, promising to ‘step in’ to prevent ‘abuse’ of the market. According to the Telegraph, one idea under consideration is that energy companies could be forced to accept a relative price cap, which would peg their most expensive tariffs at no more than six per cent above their cheapest rates. But wouldn’t that simply encourage companies to raise their cheapest rates? All government price controls seem destined to have unpleasant side effects.
If energy companies were making mega-profits in an uncompetitive market, that might make sense. But industry profit rates hover between three and four per cent – hardly extraordinary. A quick glance at a price-comparison website will reveal a host of smaller, energy-reselling companies like First Utility, Ovo Energy and more offering to undercut the big boys. In any event, energy producers are huge companies with enormous amounts of capital invested, so the headline figures for profits also seem equally huge. But all that infrastructure requires capital investment. If companies don’t make sufficient profits, investors will simply find other places to put their money. Given the billions that will need to be invested over the coming years to renew the electricity-supply system, that seems like an outcome we should strive to avoid.
The real problem is not corporate greed but government policy. Our energy bills are much higher than they otherwise would be thanks to the drive to decarbonise energy production. Subsidies and guaranteed selling prices are offered to low-carbon sources of power like solar, wind, nuclear and – most egregiously of all, perhaps – ‘biomass’, which mostly means importing timber pellets from North America to burn in power stations instead of coal. Just how ‘low carbon’ burning wood instead of coal really is is the subject of fierce debate, but we’re being made to pay for the privilege regardless. Meanwhile, green taxes have been slapped on energy sources like coal and gas to make them less attractive. Although emissions rules have pretty much wiped out coal-fired power generation in any event.
Even the existing gas-fired stations are struggling because they can only run when renewables don’t supply enough electricity to meet demand. The government effectively decides when that fossil-fuelled electricity can be sold. But the madness doesn’t stop there, because there will be times in winter when the wind doesn’t blow and demand is high, so we pay out hundreds of millions of pounds on just-in-case payments to anyone with the capacity to burn coal or diesel to be ready to fill in the gaps. And let’s not get started on the endless delays in getting shale-gas production – through so-called ‘fracking’ – up and running in the UK.
The result of all this is an energy system now so distorted by the demands for decarbonisation that it is effectively a nationalised industry delivered by private companies. And this mess is hitting us in the pockets.
Last week, the Committee on Climate Change (CCC) – a government body set up to drive through the carbon-cutting demands of the Climate Change Act 2008 – revealed how much consumers were paying for green policies. In 2016, on average, nine per cent of bills for ‘dual fuel’ households – or £105 – was down to green policies. Ah, but that’s okay, says the CCC, because gas and electricity use have been cut by 23 per cent and 17 per cent respectively since 2008, saving the average household £290 a year. Some of that saving is down to greater energy efficiency, but a lot of it is down to falling gas prices. Nonetheless, those bills are still substantially higher than they would have been were it not for climate-change policies.
And things are getting worse. The CCC says: ‘Meeting the fifth carbon budget, including sourcing 75 per cent of UK generation from low-carbon sources by 2030, will add around a further £85-120 to the annual bill (£95 in our central estimate). Added to the impact on current bills, this implies that low-carbon policies will add £190-225 in total to the average annual bill in 2030 (£200 in our central estimate).’ Again, the CCC promises that energy efficiency will save the day, but it’s still the case that an important reason energy prices will remain a lot higher than they otherwise would be is government policy.
You don’t have to be a huge fan of the Big Six to think that Theresa May is using big business as a convenient scapegoat for her unwillingness to tackle the real cause of higher bills. To paraphrase the Book of Matthew: ‘Thou hypocrite, first cast the biomass out of thine own eye!’
Rob Lyons is a spiked columnist.